Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Values.

Jefferson Versus Hamilton: The Continuing Contest

This Fourth of July marks 235 years since the Declaration of Independence was published. In this immortal document, the Spirit of 1776 was given its fullest, most eloquent expression. The Declaration is a timeless document, espousing eternal principles that, while forever historically identified with America, are universal in their application.

The Fourth of July provides an occasion to reflect on what it means to be an American. Since day one, there have been widely divergent views on those questions.

During the Revolutionary War, the colonists fell into three groups: those who desired independence from Britain, Tories who did not, and many who didn't care or couldn't decide.

The Second Continental Congress was so divided over the issue of slavery that the Declaration was almost stillborn. (The perfect Fourth of July movie is the musical "1776" - an excellent dramatization of that profound disagreement.) Many of the Founding Fathers abhorred slavery with every bone in their body. Those Founders are sometimes condemned today for having compromised with southern slaveholders, a retroactive judgment of 18th-century men by 21st-century values. Granted, the Founders didn't create the ideal society. They knew that. They expected subsequent generations to make improvements. But they did, mercifully, lay the foundation for a republic that would go on to bring more freedom to more people than any other political entity in history.

From the start, Americans have been divided between the visions and values of Founding Fathers Alexander Hamilton and Thomas Jefferson. That intellectual and political debate continues undiminished today. In fact, during a recent radio interview, the host asked me out of the blue, "Whose side are you on, Hamilton's or Jefferson's?"

The question is difficult to answer for two primary reasons: First, these two giants of America's Founding addressed a wide range of issues, so one may partially agree and partially disagree. Second, as Stephen F. Knott's 2002 book Alexander Hamilton & the Persistence of Myth demonstrates so ably, subsequent American thought leaders have invented their own versions of Jefferson and Hamilton. These versions have been based on their own political convictions and biases, including which books they themselves happened to read (each of those containing its author's own slanted view) and the tenor of the era in which they lived.

There is no definitive, indisputable interpretation of Hamilton and Jefferson, but I'll attempt a few generalities.

Foremost among these generalities, at the most elementary level, those who favor a stronger government in Washington are more likely to be Hamiltonians and those who favor a weaker government, Jeffersonians.

In reply to that radio host's question, I said that I leaned toward Jefferson. In this era of Big Government that is suffocating liberty, devouring our economic substance, and is joined at the hip with big banks, Jefferson's inspiring defenses of liberty and impassioned warnings about government are timely. Nevertheless, I have my differences with Jefferson, such as his endorsement of the French Revolution. My sense is that Jefferson's strong suit was his idealism, whereas in practice he was, at times, inapt or inept.

While I have serious misgivings about Hamilton's vision for government, I think he gets a bum rap when some accuse him of having been an antidemocratic monarchist. Yes, he distrusted certain elements of democracy, but so did most of the Founding Fathers, including James Madison. Hamilton believed in some degree of a government partnership with business, but, like other Founders, he supported a Constitution that, unlike old world governments, did not erect barriers designed to keep poor Americans poor. Hamilton was an elitist, but he was an elitist by accomplishment, and not (at all) by birth.

One of the ironies of the Jeffersonian/Hamiltonian divide today is that the two major political parties have flip-flopped on their historical positions. Up until the 1950s, Democrats tended to be Jeffersonian. They opposed tariffs and other government favors for moneyed interests. Republicans, who tended to be Hamiltonian in their use of government to shape economic development from the party's Founding through Herbert Hoover's presidency, now have many leading figures with strong Jeffersonian sympathies. Today's Republicans generally share to some degree Jefferson's aversion to Big Government, the great threat to liberty and prosperity.

Finally, in the Hamilton/Jefferson debate, one of the few points that enjoys nearly universal acceptance is that both men were geniuses. They both played defining roles in the Founding and formation of the United States of America. However much we may disagree with one or the other, they were great Americans and we are blessed to have had them both as Founding Fathers.

Happy birthday, America!

Thanks, Pop

Father's Day is a poignant occasion for me, as for many. I never knew my biological father, who died in an accident. Mom and I lived near Detroit with her oldest sister and her husband, who were childless. That's how I got a Pop.

Pop was larger-than-life. Born in Nebraska in 1904, he epitomized the strong, silent prototype of the era. As a father-figure, he was stern and strict - no touchy-feely stuff. Pop believed that the school of hard knocks was the best educator. Disdaining cautionary warnings, he stood aside while I took my knocks.

Pops lived for duty. There was right and wrong, and it was his duty - and mine - to do right.

He didn't get along with my mother, but we were in need, and he fulfilled what he perceived as his familial duty by sharing his home.

He whole-heartedly embraced his patriotic duty to country:

He defied his German immigrant father, who, like many, opposed President Wilson's declaration of war against Germany in World War I.

He served three years in the Pacific on the antique submarine U-39 in the mid-1920s.

He remained active in the naval reserves for 15 years.

He returned to active duty for five years in World War II, shunning the desk job he could have had due to being older and having a wife, and volunteering instead to be on the aircraft carrier Essex, which took more enemy fire than any American vessel.

In the mid-1950s, to provide Distant Early Warning of Soviet missile attacks, he volunteered to work in the Arctic on the DEW Line, overseeing construction of radar installations every 50 miles for 4,000 miles at the "top" of North America. This job entailed two 10-hour shifts some days, living in spartan Quonset huts during months of prolonged darkness, taking bucket baths in tents when temperatures were 40-60 degrees below, and repeatedly being on airplanes that cracked up landing on the ice.

Pop's philosophy was that we all have to die someday, and what could be more worthwhile than dying to defend what is right? That attitude carried over to civilian life.

Once Pop had a run-in with the notorious Detroit-area mobster Santo "Sam" Perrone. Pop owned a quarter-section of land up north that was his deer-hunting retreat. He built the cabin, with the primary wall decoration being a twisted piece of metal from a kamikaze plane that had crashed onto the Essex. Perrone happened to be his neighbor. When Pop learned that Perrone's men were poaching deer on Pop's land during the off-season, Pop drove over to Perrone's place. Sam came outside pointing a handgun. Pop was prepared. He lifted his hand into the window opening of his car with his own gun cocked. "Are you willing to trade, Sam?" There was no more poaching.

Pop did things his way. One year, the guest speaker at the annual father-son dinner at my boarding school was Terry McDermott, the only American gold medalist at the 1964 winter Olympics. Everyone gave him a standing ovation, except Pop. I guess Pop figured he had risked his life multiple times in service to his country while all that McDermott had done was skate fast. I still think Pop's act lacked grace, but the lesson he imparted was never be afraid to be different.

At the next year's dinner, a senior in my dormitory and his dad sat across from us. It was Mitt Romney and his father, George, then Michigan's governor. Pop's philosophy was that the purpose of sitting at the dinner table was to "put on the feedbag," not to make small talk, and so he never said a word to the governor, even though I'm almost certain he voted for him. Pop felt a duty to attend such functions, not to enjoy them.

Pop went above and beyond the call in caring for his two wives, both of whom he dearly loved. He had 38 years with my beloved aunt, and as the cancer of the spine ate away at her, he contorted himself in bed to provide her maximum warmth.

Years later, when he and his second wife, Katie, were both 90, Katie became incapacitated. Pop was a one-man 24/7 nursing squad. He lost 25 pounds, needed a walker, and finally did the unthinkable: He called me for help. He promised Katie he would outlive her so he could care for her.

After Katie's passing, Pop resumed his deer-hunting outing. The "man who never missed" shot his last deer at age 92. He quit because his joints were deteriorating. He felt that if he couldn't haul the carcass unassisted, he had no business shooting an animal.

With Katie gone, Pop's life lacked purpose and duty. We urged him to live with us, but he would never surrender independence. At 94, we had to take away his car keys when he began suffering fainting spells because of mini-strokes.

That was it for Pop. He lived a strict creed: NEVER be a burden on others. In the presence of two neighbors as witnesses, he asked me to shoot him. I told him I couldn't do it, and so Pop stopped eating and left this world a month later.

Happy Father's Day, Pop. And thanks.

The High-Stakes Showdown Over Medicare Reform

The trustees of the Medicare system recently reported that the program will go broke in the year 2024 - five years sooner than was projected just last year.

The millions of Americans who have been counting on Medicare to be a reliable, stable guarantor of affordable healthcare in their senior years should be asking themselves, "Who is responsible for this predicament?" The short answer is "lots of people," but let's start by looking in the mirror.

The shameful status of Medicare brings to mind a sequence in the movie "Animal House." A freshman pledge, Flounder, let some upperclassmen in the fraternity use his brother's brand-new Lincoln for a road trip. Naturally, the brothers trashed the car. As Flounder wept in regret, the suave, smooth-talking senior, Otter, put his arm around Flounder's shoulder and explained the facts of life to him: "You [goof]ed up; you trusted us." ("Goof" replaces the original R-rated verb.)

"We the people" have goofed up big time, trusting a government bureaucracy to oversee our healthcare.

When will we learn that gigantic bureaucracies - undisciplined by the profit-motive and insulated from the normal competitive pressures of the marketplace - are inherently inefficient?

And when will a majority of Americans take a sober look at Uncle Sam's track record and recognize his chronic incompetence? Consider:

Government meddling, abetted by misregulation and a compliant Federal Reserve, generated the housing bubble/bust that has caused the market value of most Americans' most valuable asset - their home - to decline, plunging millions into negative equity.

Chronic federal overspending has impelled a weaker currency and higher prices of daily necessities.

The quackery of government stimulus spending has produced anemic economic growth; the usual result when the government share of a country's GDP dramatically expands.

The government-run Social Security Administration will henceforth operate in permanent deficit - a grotesque malfeasance that would have resulted in the imprisonment of private executives who perpetrated such a swindle.

With a record like this, how could anyone trust government to get it right on healthcare? The big question now is: Why are so many Americans opposed to Congressman Paul Ryan's attempt to put Medicare on sounder financial footing?

Part of the resistance to fixing Medicare may be simple partisan loyalty - i.e., Republicans are the enemy; oppose everything they propose.

Part of it may be fear of change.

Part of it may be the seductive belief of "the free lunch" and a corresponding belief that Congress simply has to raise taxes on somebody else to obtain necessary funds.

Part of it may be that Americans believe, "We paid for it, so it's ours." Well, yes, we've been paying for Medicare via payroll deductions for decades, but no, our promised benefits remain unfunded due to government mismanagement. (We [goof]ed up; we trusted them.)

Part of it may be what economists call "short time horizons" - that is, focusing on the short run instead of the long run. Many seniors tend to do this. So do many politicians with their fixation on the next election. In economics, short-time horizons are highly correlated with poverty; in other words, ignoring the long term is why many people are poor.

Many of those on the extreme left oppose reforming Medicare for another reason entirely: they desire a state-run monopoly of healthcare. They prefer a socialized healthcare model. To attain that goal, the left needs to merely block reforms to Medicare. Gridlock and stalemate will assure Medicare's eventual bankruptcy and therefore its subsequent nationalization (a la Fannie Mae and Freddie Mac).

Early polls show stiff resistance to Congressman Paul Ryan's proposed Medicare reforms. If the Republicans can sell the public on the need for reform, then Medicare's solvency may be prolonged. If the public repudiates Ryan's plan by returning a Democratic majority to the House while re-electing Barack Obama to the White House, then a government takeover of the healthcare industry is all but assured.

The stakes in the next election are enormous. The Medicare reform contest could be the one for all the marbles.

My Congressman's Tough Job

Being a congressman can be a great job. It can be attractive for someone who relishes the ersatz virtue of playing Santa Claus with other people's money, who finds a year-round routine of fund-raising social events enjoyable, and who covets receiving one of the most generous pensions on the planet. It can also be a great challenge for someone who didn't pursue the job for those purposes.

Consider my congressman, first-term Representative Mike Kelly (R-PA). (Full disclosure: I voted for him and contributed to his campaign.)

Kelly is an interesting case. He didn't need Washington. Already set financially from his successful automobile dealerships, satisfied with the joys of living close to his family, Mike Kelly didn't need the money, fame, prestige, or power of a congressman. He would have been happy to enjoy the good life he already had, watching his grandchildren grow up. He gave a lot in order to go to Washington belatedly, at age 62, but he did it in the hope of stopping a runaway federal government before its insane policies produce a calamity.

Having recently attended one of Kelly's town-hall meetings, it is clear that he has been dealt a herculean task. First, he has the extremely difficult task of convincing many of his constituents that the federal government has to spend less, not more, in order to avert economic ruin. Based on what I saw and heard at the meeting, the odds are against him.

A conservative gentleman craved a government policy - certain to cost tens of billions of dollars - to convert our national automobile fleet to run on natural gas. A liberal lady wanted new federal spending on educational training. They meant well, I know, but I felt like asking, "What part of 'we're broke' do you not understand?"

Kelly related a phone conversation that he had with a couple in their 80s: They begged him not to support Paul Ryan's plan to reform Medicare, even though the plan doesn't touch benefits for anyone over 55. They were opposed to any plan that would increase consumer choice; they just wanted the government to tell them what to do.

More resistance to downsizing Big Government was typified by a lady who felt we could afford the ongoing federal spending binge if only we would raise taxes on "the rich" and on oil companies allegedly making profits of "38 percent."

Alas, this anti-capitalist religion is founded on myths. Big Oil generally makes 7-8 percent profits, and earned 6.1 percent in the most recent quarter - enough to place their industry 112th after publishing, software, telecom, biotech, steel, restaurants, beverages, and other capitalist demons. Exxon, the biggest of Big Oil, has paid more in taxes on U.S. operations during the last five years ($59 billion) than government has allowed them to keep as profits ($41 billion).

As for "the rich," whose percentage of total income taxes paid actually rose after the Bush tax cuts, you could take 100 percent of their income and still not eliminate the deficit. Rep. Kelly is going to have a difficult time curbing federal spending when many voters believe that they are morally justified in operating on the "principle" of "He has it, we want it, and we have more votes."

Also standing in the way of Kelly's goal of shrinking government deficits are many, perhaps most, of his congressional colleagues, who take the line of least resistance and vote for government largesse for so many who simply appeal and lobby for it.

Another formidable obstacle to the general goal of curbing Big Government before it ruins us is a president who has the opposite goal. President Obama is so committed to expanding government that he continues to call for new programs and has proposed no serious reforms of Medicare - a program whose costs are likely to increase exponentially in the future.

As if government-addicted constituents, a divided congress, and an obstinate president don't make shrinking government seem like "mission impossible," Mike Kelly and his colleagues have to contend with the entrenched power structure of Washington's leviathan bureaucratic state. Trying to curtail bureaucracies' expensive excesses is like the game Whack-a-Mole. For every abusive regulation that Congress is able to rescind - such as the EPA's recently annulled rule that dairy farmers take costly oil-spill prevention measures (on the astounding ground that milk contains a type of oil!) - the bureaucracies promulgate dozens of new regulations.

I admire Rep. Kelly's courage in waging this uphill battle. He's trying to save his constituents from a runaway government, but many would rather run away with the largesse that government gives them.

Swindling America's Youth

We older Americans have saddled our youth with a mind-boggling public debt - over $20 trillion already spent ($14.3 trillion of "official" national debt plus various off-budget expenditures, according to the U.S. Treasury); trillions more of projected deficit-spending over the coming decade; and tens of trillions of dollars of unfunded liabilities.

By the time today's toddlers can vote, it is likely that both the Medicare and Social Security funds will be exhausted. Many of today's older Americans vehemently oppose any and all attempts to restructure those entitlement programs to extend their viability. Instead, the graybeard generation expects younger Americans to endure the oppressive tax burden that will be needed to keep the entitlement promises fully funded.

My generation should be ashamed of what we have done to younger Americans. No, we haven't sold them into child prostitution, but we have placed them in bondage to the most massive debts in world history. We have led these innocent lambs to a financial slaughterhouse.

To add insult to injury, we show our lack of regard for the young by regarding them as second-class citizens in bankruptcy law. A middle-aged businessman with decades of experience can make mistakes and be relieved of his debt burden by a bankruptcy judge. By contrast, a nave, inexperienced teenager, who borrows money for college, then can't earn enough to pay back all the loans, is stuck for life, because college loans, unlike business loans, are not eligible for forgiveness via bankruptcy. The overall, unspoken message is clear: The youth are our society's indentured servants, in permanent debt servitude to their elders.

The young will never make good on all of the federal government's mountains of debt and unfunded promises. These debts won't be paid because they can't be paid; there simply isn't enough wealth in the country for this to be possible.

If the debt burden continues to mount, eventually the young will perceive the enormity of the burden that older generations have imposed on them, and there will be a backlash. They might rebel against the crushing debt burden by repudiating it - an outright default. However, I doubt it will come to that. Uncle Sam has already started to default on those debts - not explicitly, but stealthily, by having the Federal Reserve inflate our debts away. It is likely that there will be a hyperinflationary blow off or a deflationary implosion, either of which will extinguish trillions of dollars of debt before many of today's children are grown.

Few things could tear a society apart more than having the economic interests of young and old arrayed against each other. Yet this is the inevitable bitter fruit of chronic deficit spending and unending accumulation of debt.

Our Founding Fathers warned of this danger. In his Farewell Address, George Washington urged Congress to strive to quickly retire debts resulting from occasional and hopefully infrequent wars instead of "throwing upon posterity the burthen [sic] which we ourselves ought to bear." Thomas Jefferson could think of few things more unjust than loading the living generation with the debt of those who have already died. Writing to John Taylor in 1816, Jefferson wrote that "the principle of spending money to be paid by posterity ... is but swindling futurity on a large scale."

Rather than sentencing today's younger Americans to a lifetime of bondage to debts that we have incurred, justice and mercy suggest that we need to retire the federal debt burden. We must begin shrinking federal spending this year. If we don't slay the debt monster, our children may someday - and justifiably - curse us.

The Global Energy Superpower

Saudi Arabia has long been the dominant producer of petroleum on the planet. Nature endowed the Arabian Peninsula with gigantic deposits of this vital source of energy. Many of us have lamented the quirk of nature that placed much-needed oil in the most geopolitically unstable region in the world.

Although Saudi Arabia is the king of oil producers at present, there is another country that has far more extensive deposits of fossil fuels. Because fossil fuels are the most economical and reliable energy sources known to man, the country that has the largest share of them is fortunate indeed. What is this richly endowed country? It is none other than the United States of America.

Perhaps you have heard the United States described as "the Saudi Arabia of coal." Actually, that may be an understatement, for while the U.S. Department of Energy estimates that the Saudis have 20 percent of the world's known petroleum reserves, the United States has an even larger share - 27 percent - of the world's known deposits of coal. As engineers continue to develop more and more "clean coal" technologies, this abundant resource will continue to serve our energy needs for as long as we need it.

In addition to our immense coal deposits, the United States contains gigantic natural gas deposits. Currently, the United States ranks fourth in natural gas production, but domestic reserves are soaring as horizontal drilling and "fracking" tap the mind-boggling dimensions of the natural gas fields located here in Pennsylvania (the Marcellus formation), Louisiana (the Haynesville formations), and elsewhere across the lower 48. If fracking can be done without contaminating precious water supplies, it is possible that the United States may also become "the Saudi Arabia of natural gas."

There is even more good news: Besides being the Saudi Arabia of coal and potentially natural gas, we may become the next "Saudi Arabia" of oil. This won't be the light, sweet crude that the Saudis pump at little cost and with relative ease, but it's oil nonetheless. The Green River shale rock formation under just three of our states - Colorado, Wyoming, and Utah - is estimated to hold 1.8 trillion barrels of oil, about seven times as large as the Saudis' crude oil reserves.

Beyond the vast petroleum deposits in the Green River formation, we have the Bakken field in North Dakota and Montana, where ever-more reserves are being found, the untapped deposits in Alaska, the continental shelf, and other existing fields in the lower 48 states. Add to those immense reserves yet-to-be-discovered petroleum deposits and technological improvements, such as those that improved recovery rates from 20 percent to 35 percent of oil deposits in recent years (yes, that means that most of the oil is still there), and you can see that the prospects for domestic oil production are mind-boggling.

Ours is a case of geological good news and political bad news. We have under our feet the world's greatest treasure trove of energy supplies. The bad news is, we have a president and a party that have made it their full-time policy to obstruct, thwart, and forbid extraction of those immense resources, while encouraging other countries to drill, drill, drill.

We have all that we need, friends. We just need the freedom to go get it.

Millionaires in America

Recently, CNN's Money.com posted an article bearing the title, "U.S. Millionaires Population Expanded by 8 Percent in 2010." According to the article, there are now approximately 8.4 million millionaires in the United States, and last year's increase was due primarily to rising stock prices, following a 27 percent decline in the number of millionaires in 2008 due to the stock market's plunge that year.

What is one to make of this information?

There were only a few thousand millionaires in the United States in 1900. One would expect there to be many more today with the enormous economic growth of the last 110 years. On the one hand, there would be even more millionaires today had progressive taxation not prevented millions of Americans from accumulating more wealth. On the other hand, there would be considerably fewer millionaires were it not for the effects of inflation.

Adjusting for the increase in the Consumer Price Index, it would take a net worth of about $25 million today to be the economic equivalent of a millionaire in 1900. Clearly, being a millionaire today does not support the lifestyle that it did a century ago.

Leaving out the market value of one's primary residence, the number of American millionaires today would fall by more than half. Many millionaires are land-rich or house-rich, but middle class in terms of liquid assets.

As the article reported, many Americans rise into and fall out of millionaire status as the stock market fluctuates. Their millionaire status is rather tenuous - "here today, gone tomorrow"-subject to the capricious gyrations of financial markets. Easy come, easy go, that paper wealth.

The fact, though, that last year's increase of millionaires is attributable to stock-market gains is troublesome. Federal Reserve Chairman Ben Bernanke stated that today's higher stock prices show that his QE2 policy of inflating the monetary base has been successful. This raises questions of legitimacy, for it was never the Fed's legislative mandate to pump up stock prices, as well as questions of fairness - if Bernanke is using his power to enrich stock-market investors. I am concerned that these facts will stir up resentment at millionaires in general. There are already too many Americans who have a negative, even hostile, attitude toward the rich.

As a free-market economist who believes in America as the Land of Opportunity, I hope our country continues to prosper and produce even more millionaires. Indeed, these two phenomena go hand in hand, rising together interdependently. However, an absolutely crucial distinction must be drawn here.

From a true free-market, capitalist perspective, there is a legitimate way to become a millionaire (the economic) and an illegitimate way (the political). The economic way is the old-fashioned way: One earns his or her fortune as a reward for sharing one's talents and products with others, by excelling in service to one's fellow man in an open, free, competitive marketplace. The "soak-the-rich" ideologues think these achievers deserve to be subjected to punitive taxation for having dared to earn so much. Is it really a valid theory of justice to punish success in benefiting others? Is rendering service to one's fellow man somehow objectionable or morally suspect? I think not.

The political approach is an entirely different matter. This is the far-too-common practice that economists call "rent-seeking" behavior: individuals and corporations using their political connections to rig the market to enrich themselves - things like bailouts for Wall Street firms, giant subsidies, federal regulations that require use of a particular product that a politically-connected firm just happens to make, etc.

Rent-seekers don't profit by serving their fellow man through voluntary exchange, but by milking the taxpayer through manipulating the political process. Rent-seekers prosper from political connections and privileges that the rest of us don't have. This is patently unfair, and most definitely is not free-market capitalism, contrary to the false assertions of the anti-capitalist left. Indeed, free-market economists going back to Adam Smith have warned us about businessmen exploiting the political system to enrich themselves at everyman's expense.

Let us respect those who earn their millions in free, honest commerce; let us end the socialistic practice of government determining economic winners by channeling favors and funds to favored clients. The former is the fulfillment of the American Dream; the latter is its repudiation.

Who Objects to Free Speech?

Free speech has always been one of our most cherished rights. It has come under attack repeatedly by those who find it to be an inconvenient and unwanted obstacle to the attainment of their political goals. Sometimes, those in positions of power ignore the First Amendment and issue laws and regulations to silence their opponents. Other times, politicians or citizens work on an unofficial level, resorting to influence or intimidation to achieve censorship.

President John Adams signed the Sedition Act to criminalize "false, scandalous, and malicious writing" against the government or its officials. Americans didn't like the federal government censoring expression or presuming to determine truth, so they canned Adams in the next election.

Abraham Lincoln jailed newspapermen whose comments on the Civil War were not to his liking.

In 1935, Franklin Roosevelt signed the National Labor Relations Act, effectively curtailing employers' freedom to talk with their own employees about their company's financial condition and the affordability of wages and benefits.

Both Roosevelt and Richard Nixon imposed various wage and price controls. Since prices are the language through which present value is communicated between potential buyers and sellers, they essentially banned a form of free economic speech.

The assault on free speech seems to have accelerated in recent years. Freelance censors on the left have prevented dozens of conservatives from giving scheduled speeches on college campuses by shouts, chants, and even physical aggression.

A favorite tactic of global-warming propagandists has been to try to suppress dissenting views by urging reporters to ignore opposing viewpoints. Stephen Schneider, from his well-funded government perch at the National Center for Atmospheric Research, called it "journalistically irresponsible to present both sides" of the story. Al Gore used to tell journalists not to waste time interviewing global-warming skeptics.

Under the Patriot Act, the FBI is empowered to issue gag orders against those whom they investigate - even harmless little old ladies. (See Judge Andrew Napolitano's YouTube clip.)

The Obama administration seems particularly unfriendly toward free speech. Consider just a few examples:

* The president's FCC diversity officer, Mark Lloyd, has lamented that private media companies almost thwarted Hugo Chavez's "incredible" revolution in Venezuela, and wants to impose punitive fees on radio stations that broadcast conservative talk shows, lest they interfere with the accomplishment of the Obama revolution.

* The president's Secretary of Health and Human Services, Kathleen Sebelius, publicly warned health-insurance companies that there would be "zero tolerance" for statements that contradicted the official party line on Obamacare.

* In December, the Federal Communications Committee (on a party-line 3-2 vote) imposed "net neutrality" - an innocuous-sounding phrase that disguises the elementary fact that the government wants some control over the Internet, the kind of power that the Chinese government has. (Incidentally, Verizon has filed suit against this unconstitutional power grab.)

* In his book, Democracy and the Problem of Free Speech, President Obama's head of the Office of Information and Regulatory Affairs, Cass Sunstein, asserted, "the First Amendment . . . is not so much a matter of protecting rights as ensuring sound public judgment through the process of public deliberation." Sunstein believes that "people should be exposed to materials that they would not have chosen" and favors policies like federal guidelines for coverage of public issues and taxpayer-funded panels of "experts" to insure "diversity of views." So much for the principle of letting Americans listen to what they want.

In November, Sen. Jay Rockefeller (D-WV) mused publicly about the FCC shutting down Fox News and MSNBC (not exactly an equal trade, since relatively conservative Fox has multiples of the viewers of relatively liberal MSNBC) so that Americans could "have some faith in their government." Yep, don't let the people hear about what our great leaders are doing in Washington!

More recently, some voices on the left have exploited the tragedy in Tucson to rail against free political speech. (Personal disclaimer: I can't stand strident rhetoric and am on record in advocating self-restraint from hateful rhetoric.) The left shows a remarkable lack of confidence in the attractiveness of its agenda by resorting to attempts to suppress opposing points of view. Thomas Jefferson wrote, "It is error alone which needs the support of government. Truth can stand by itself."

Rather than attempt to censor those with whom we disagree, let us welcome a vigorous debate. If you don't like what you hear, turn it off, but don't deny others the freedom to speak or hear various viewpoints. Jefferson again: If an opinion or argument "be false in its facts, disprove them; if false in its reasoning, refute it. But for God's sake, let us freely hear both sides if we choose." Amen. *

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Values.

Inflation: Food, Fuel, and the Fed

As Americans increasingly feel the pinch of higher prices for food and fuel, the Federal Reserve's QE2 policy of creating more money has been called into question. Asked if the Fed bore some responsibility for these vexing price increases, Fed Chairman Ben Bernanke essentially replied, "It's not our fault." Instead, Bernanke blamed the price increases on "global supply and demand conditions."

Is Chairman Bernanke correct? To use a well-known phrase: "Not exactly."

Far be it from me, as an economist, to downplay the importance of supply and demand in determining prices. Certainly supply and demand have been pushing food and fuel prices higher. But those factors don't account for all of the increases. For Bernanke to claim that the Fed's inflationary monetary policies have not put upward pressure on prices is preposterous.

Let's examine some of the causes of higher food and fuel prices more closely.

First, fuel: For decades, it has been federal policy to declare huge tracts of domestic territory off-limits to petroleum production. Team Obama - whose secretary of energy, Steven Chu, publicly declared in 2008, "Somehow we have to figure out how to boost the price of gasoline to the levels in Europe" (i.e., $8 per gallon) - has been the most radical anti-drilling administration ever. With government having succeeded in artificially suppressing supply to such a great degree, prices for oil and gasoline can't help but be higher than they should be.

Second, food: For decades, federal policies have been designed to boost food prices above their free-market level in order to benefit well-organized, well-funded, and politically influential agricultural interests. In recent years, federal policy has given a turbo-boost to prices of agricultural commodities by mandating increased usage of ethanol in our gas tanks. We are literally burning up millions of acres of corn, a basic food staple. Inevitably, less corn available for food means a higher price for corn. The higher price for corn ripples through the economy, resulting in higher prices for competing grains and livestock that feed on grain - voila, it gets more expensive to eat.

The ripple effects of government-induced higher corn prices are international. Since food, like oil, has a global market, higher agricultural commodity prices are necessarily global. As food prices have risen, life has become increasingly precarious for the masses of poor people, such as those in the Middle East who have risen in protest and toppled governments. In turn, the rising political instability of the world's key oil-producing region has imposed an uncertainty premium on the price of crude oil, further driving up gasoline prices here in the United States.

Clearly, Ben Bernanke was right to cite supply and demand factors as contributing to higher food and energy costs. He was too delicate, too politic, to point out the culpability of government policy in perpetrating this mischief. Without a doubt, federal policies have made food and fuel more expensive for Americans, with an additional international feedback loop whereby higher food prices trigger political instability in the Middle East, driving up oil prices even further.

However, Bernanke and the Fed are not blameless here. If the prices of a small number of commodities rise while most prices do not, we would reasonably conclude that those price movements are dictated by supply-and-demand factors. But when prices in general rise, that is the smoking gun that points to an inflationary monetary policy.

Since the Fed's QE2 program was launched last September, the Commodities Research Bureau index of 19 basic, widely-used commodities has risen by almost 40 percent. Has demand risen and supplies fallen significantly for all commodities since September? The odds against such an improbable coincidence are astronomical.

Instead, the answer is obvious: The Fed has flooded the financial system with newly created money, and the inevitable result of a lot more money bidding for approximately the same supply of goods is markedly higher prices. Indeed, for Bernanke to deny partial responsibility for higher prices is more than disingenuous, since the Fed's stated goal last September was for prices to rise more rapidly. Does the Fed now regret getting what it wished and aimed for?

The solution to the problem of soaring prices of food and fuel lies in Washington. If Congress, the president, and the bureaucracies would restore free markets in food and fuel markets, prices would come down. If Bernanke and the Fed would quit expanding the supply of Federal Reserve Notes, upward pressure on prices would be diminished. It's that simple, economically. Whether Washington's frequent perverse, wealth-destroying policies can be reversed politically is another matter.

How "Radical" Is the Ryan Plan?

Question for those of you concerned about the size of federal debts and deficits: Would you endorse a plan which would add another five or six trillion dollars to the federal debt over the next decade while increasing Uncle Sam's annual expenditures by $1.1 trillion? If so, you're in luck. House Budget Committee Chairman Paul Ryan (R-WI) recently unveiled just such a plan.

Naturally, Democrats immediately denounced Ryan's plan as "radical." They think the increases in spending and debt should be much larger. It shows how far the goalposts have been moved in American politics that adding multi-trillion-dollars of debt is the most conservative proposal anyone in government has made. How would you like your government debt, Mr. or Ms. Citizen - gargantuan or astronomical?

The Ryan Plan, if implemented (more on that in a moment), would cut $179 billion from President Obama's planned spending in 2012 and another $241 billion in 2013. Why is it not "radical" to raise spending by $787 billion in one year, like Obama did in 2009, but "radical" to propose a decrease of $179 billion?

Ryan proposes to reform Medicare and Medicaid so that they don't bankrupt the country. Why is that demonized as "war on the elderly and poor" (the phraseology of Illinois Democrat Jan Schakovsky), but nobody talks about waging "war on the young" by saddling the rising generation with trillions of dollars of debt?

Ryan's plan is bold in comparison to the status quo in Washington, but it isn't radical. You want "radical"? How about getting government out of the medical field entirely? Since the creation of Medicare and Medicaid in the 1960s, medical costs have soared far beyond the rate of inflation. More than that, market competition has been diminished and fraud and inefficiency have ballooned apace with the growth of these two medical bureaucracies. (Why do liberals rant and rave about the Pentagon's inefficiencies, but remain silent about the similar inefficiencies of Medicare and Medicaid?) Ryan's plan is statist to the core, promising seniors large government subsidies with which to choose from a slate of government-regulated health care plans.

At this stage, Ryan's plan is academic. Its combination of spending cuts, tax cuts, and devolution of administration of government programs from the federal to the state level - while a significant improvement over the fiscal insanity of recent years - is dead in the water until at least 2013.

If you doubt that, look at the recently concluded "government shutdown" soap opera. The government is going broke, the Republicans were asking for a giveback of less than 10 percent of the Obama/Pelosi/Reid spending increases, but the Democrats - famous for extolling bipartisanship - threatened to shut down the government rather than make such a modest compromise.

It will be interesting to see how long Ryan's fellow Republicans in the House stand by his proposals. The coming vote is largely symbolic. The real test will be when Republicans have to face the voters in close re-election races next year. A majority of Americans may say that they favor reduced federal spending and smaller deficits, but when push comes to shove, how many will vote for a legislator who actually shrinks programs from which voters benefit?

Even if Ryan's plan, by some miracle, were to be enacted, nothing would change. Uncle Sam will remain a gigantic, meddling nanny, interfering with our lives and progressively eroding our liberty, entangling us in a corrupt network of special privileges that murder justice and bury the rule of law.

Ryan's plan is a futile attempt to square the circle. He is trying to find a way to preserve an inherently flawed system - a democratic transfer society - whereby government somehow takes care of all of us without eventually spending itself into bankruptcy.

The Ryan Plan is not radical; that is, it doesn't get to the root of the problem. It never questions the legitimacy of government redistribution of wealth. The mechanisms, rationale, and justification for Big Government remain unchallenged. Although a significant step in the right direction (i.e., less federal spending), Paul Ryan's plan ultimately is not a cure for what ails us.

Christian Conservatives and Randians

According to a 1991 Book of the Month Club / Library of Congress survey that asked what book had most influenced their lives, the two top picks by respondents were the Bible and Ayn Rand's Atlas Shrugged. Coincidentally, this is a big week for both Christians and Randians. The former are celebrating the resurrection of Jesus Christ; the latter, the long-awaited release of the film version of Atlas Shrugged (part one of three).

On the eve of the film's April 15 release, I was half of a panel discussion on Atlas Shrugged at a gathering of young professionals in Pittsburgh. I focused on economic and political themes in Rand's writings. As a former socialist who now espouses genuine free-market capitalism (not today's counterfeit version), I esteem Atlas Shrugged as a brilliantly insightful work of politico-economic fiction. Rand's grim depiction of self-serving political opportunists progressively destroying the economic motor that sustains human life is uncannily accurate, astute, and timely, despite having been written over 50 years ago.

The other speaker at the Pittsburgh event was a very kind, gracious, and bright professor - a philosopher who is an adherent of Rand's comprehensive philosophy, called "Objectivism." For those of you not familiar with it, one of the fundamental tenets of Objectivism is atheism. Consequently, dialogs between Christians and Objectivists are relatively rare, so I am glad to report that the Pittsburgh panel shared by a Christian economist and Objectivist philosopher was friendly and respectful.

We were able to pull it off because we largely stayed away from areas of irreconcilable differences - specifically, beliefs about ultimate causes. Instead, we made common cause in addressing the huge threat to all of us of an aggressive political class bent on demolishing property rights, redistributing wealth, and absorbing the private sector into a centrally planned people's republic.

This gives me hope that a tactical alliance between Christian conservatives and Objectivists can be forged, since we both seek to reverse the progressive loss of liberty in the United States. We Christians shouldn't expect Objectivists to accept the reality of the God that we know as an immanent spirit, but Who does not appear on earth as an objective reality. Nor should Objectivists expect Christians to accept some materialistic hypothesis about the origin of the visible universe, such as the fantastical "Big Bang" theory - a belief that requires one willfully to overlook the reasonable but problematical question, "Where did the primordial ball of gas come from?"

We Americans have a long and proud history of overlooking religious differences while collaborating to produce a more prosperous society. What one believes about God or how one conceives of ultimate causation cannot be enforced by government. It is a matter of what the Puritans called "liberty of conscience." How Americans treat each other, by contrast, is inevitably a public matter. A society must hammer out rules for what is and is not permissible in how we interact with each other.

Commonly shared ethical principles form the basis for our Constitution and laws. Christians who correctly understand the Bible's teachings about private property unite with Randians in believing that every individual's property rights should be inviolable. Rand's statements in Atlas Shrugged about the legitimate sphere of government power are virtually indistinguishable from certain principles expressed in the Declaration of Independence.

For the time being, let's set aside our differences. The problematical relationship of Christians and Objectivists reminds me of the friction that so often divides economic conservatives and libertarians, limited-government classical liberals and anarcho-capitalists. All of these believe that government is far too big today. Yet they waste far too much energy quarreling with each other when they could expend that energy far more productively in working to roll back Big Government. Their mutual priority should be to get rid of 75 percent of the federal leviathan. Then, after having achieved that much freer and more prosperous state of affairs, have a royal donnybrook to decide what to do about the remaining 25 percent of Uncle Sam.

Similarly, I see conservative Christians and Objectivists as potential allies in the "good fight" for smaller government and a restoration of individual rights, united by a commonality of ethics. In the short run, there is an immediate, desperate need to pry government's grip off of our country's economic windpipe before it chokes us into serfdom; in the long run, metaphysical questions about ultimate reality, the creative force, and accountability may be the most important. But, let's first make common cause to thwart those whom Rand dubs "looters" and "cannibals" - those who are bleeding our wealth and devouring our rights. Later, in a United States liberated from suffocating government, there will be a more advantageous time for interested parties to have a knockdown, drag-out debate about God and creation.

America's Christian Founding Fathers and the 20th-century immigrant Ayn Rand both deeply loved the United States of America. May those who walk in their respective footsteps today also love the United States enough to forge an alliance, not of convenience but of necessity, to rescue our country from her destroyers and to resurrect liberty and restore our fundamental rights.

Budget Tightening in Pennsylvania - and Around the Nation

Pennsylvania's new governor, Tom Corbett, has submitted his first annual budget to the state legislature. It includes proposals for spending cuts and no new taxes. In some ways, the budget is a model of what must be done nationwide.

Governor Corbett also claims that it cuts spending, but that depends on how the numbers are crunched. During the current 2010-2011 fiscal year, $28 billion is being disbursed from the general fund. That's less than half of total Pennsylvania government spending - the balance consisting of special funds and federal funds. Next year, approximately $3 billion of one-time federal stimulus funds will be gone; thus, the 2011-2012 general fund would decrease to $25 billion without any spending cuts or increases. Since Corbett has proposed to spend $27.3 billion in fiscal year 2011-2012, then the alleged 3.1 percent cut from $28 to $27.3 billion, while technically true, appears to be an actual 9.5 percent, $2 billion hike in Pennsylvania-funded spending ($25 to $27.3 billion).

Nevertheless, Corbett has proposed specific spending cuts, eliciting criticism from those who have grown accustomed to receiving erstwhile Governor Ed Rendell's perennial largess. Indeed, the contrast between the Democrat, Rendell, and his Republican successor is unmistakable. It brings to mind the late Austrian scholar Erik R. von Kuehnelt-Leddihn's description of the competing parties in modern democracies: The liberal party is the Santa Claus party; the conservative party is the "tighten the belt" party.

In Pennsylvania, ex-Governor Rendell was Santa Claus on steroids. He increased subsidies to his favorite constituencies, such as school districts and state colleges, all eight years he was in office, even while the private sector was shrinking from the recession. Under Rendell, Pennsylvania's general obligation debt rose 39 percent. Wait, it gets worse. Most of the commonwealth's debt is in off-budget agencies. That indebtedness soared 93 percent under Rendell. In total, Pennsylvania's state debt swelled 82 percent in eight years to $43 billion. (By way of comparison, local debt in Pennsylvania increased 35 percent during the same time period.) So profligate was Rendell's spending that he borrowed more than $3 billion of federal monies to fund unemployment checks, and he left Corbett without sufficient funds to pay all current bills; consequently, Pennsylvanians are paying interest on emergency loans to cover current expenditures. Want more? The teachers' retirement fund is $31 billion underfunded and the state employees' pension $11 billion underfunded. Thank you, Ed Rendell.

In ancient Athens, there was a time when citizens voted on an office-holder's performance at the end of his term. If he had governed poorly, the citizens voted to exile him. We don't have such a safeguard today. Instead, Rendell goes on his way while Corbett inherits a mess and takes all the heat for trying to make ends meet.

Governor Corbett has one option if he is not to allow the state's finances to continue deteriorating to the point of bankruptcy: To play the role of belt-tightener-in-chief. Thus, he has begun to do what fiscally responsible governors across the union are doing and must continue to do to help salvage states' financial viability. He is asking long-time beneficiaries of state spending, like the education sector, to accept some cuts. Also, citing figures that the median state government salary in Pennsylvania increased from $39,000 in 2004 to $45,000 today (in comparison to today's private sector median income of $32,000), Corbett proposed freezes and cutbacks for state employees.

Corbett is to be commended for defying the know-nothing leftists who complain, "The big winners [in Corbett's budget] are corporations with out-of-state addresses," particularly oil and gas companies. This is economically illiterate. One of the best hopes for increasing state tax receipts is for those out-of-state companies to continue to create good jobs by developing the state's rich natural-gas deposits. As for them being domiciled out of state, blame our anti-business (and therefore anti-job) tax laws. You don't attract businesses to your state by taxing the heck out of them.

It remains to be seen which of Corbett's proposals will be enacted by the GOP-controlled legislature. However, since the total indebtedness (including unfunded obligations) of all units of government in Pennsylvania now exceeds $194 billion, it would be fiscally insane for Corbett and the legislature not to trim spending. Actually, a three-percent trim is not enough. The debt figures are plain: It's time for some major belt-tightening, in Pennsylvania and around the nation.

A Tale of Two Union Disputes: the NFL vs. Wisconsin Teachers

There are two high-profile labor disputes in the news these days. One involves Wisconsin's public-school teachers; the other, the National Football League's players. I mentioned this to a friend, who responded that the NFL dispute was more troublesome. The very idea of people making such high salaries possibly striking for more irked her. While I understand that sentiment, I believe that the dispute in Wisconsin is far more problematical. Here's why:

I freely concede that teachers are far more valuable to society than pro-football players. Education is necessary; major league sports teams are not. Why, then, do jocks get paid so much more than teachers?

This question is a latter-day version of what was known a couple of centuries ago as "the paradox of value" - a paradox that economists didn't resolve until the 1870s. The paradox was that an ounce of gold sold for a much higher price than a loaf of bread, even though the former was an optional ornamentation and the latter sustained life itself. Clearly, bread is more valuable. It is also, however, far more common than gold. The relative scarcity of gold accounts for its higher price. Today, the relative scarcity of men able to compete at the NFL level is why they get paid so much more than teachers, the latter of whom are far more abundant.

Many say that pro athletes don't deserve to make so much money. I disagree. That is not to say that I regard athletes as more important than teachers. I don't. Nor is it to say that we shouldn't be concerned about the athlete-as-idol phenomenon in our culture. (The decline and fall of Rome was accompanied by a pagan obsession with musculature and physical contests.) It's not that I don't think tickets to NFL games are already too high. For my taste, they are, but that is irrelevant, because enough of my fellow citizens freely choose to pay those stiff prices and pay for those gaudy NFL salaries. Since nobody forces anybody to pay those ticket prices, who can object?

Here are the main reasons why I have more sympathy for the NFL Players' Association (NFLPA) than the Wisconsin teachers union (WEAC) in their respective labor disputes:

The NFL is highly competitive. Those who don't perform at a very high level are quickly replaced. Superior performance is rewarded and underachievers are pink-slipped. The NFL is a meritocracy, and that commands respect. The teachers union, by contrast, is anticompetitive. The NEA and its affiliates have squandered much public goodwill by routinely protecting inferior teachers and resisting all efforts to reward exceptional performance.

The NFLPA is negotiating directly with those who pay their salaries - the team owners. The WEAC, by contrast, uses every political tactic it can think of to induce the Wisconsin governor and legislature to transfer money that isn't even their own (it's citizens' money) into their bank accounts. NFL owners are wealthier than the players they pay. By contrast, many of the citizens who are taxed year after year to pay teachers' salaries and benefits have lower salaries and fewer benefits than those to whom their taxes go.

I should interject here that there is an unresolvable dilemma inherent in the taxpayer-financed public school model. Either governments enable public school teachers to hold taxpayers over a barrel and essentially extort money from them by work stoppages, or teachers surrender their right to withhold their labor if the terms of employment aren't satisfactory to them. Neither option seems just. The only way out of that dilemma is to privatize education, but that idea is currently regarded as too radical.

Finally, the NFL negotiations have not become a divisive partisan phenomenon in an age when too many issues have. We won't have to worry about the NFL labor dispute inducing President Obama to abuse our constitutional federal order or try to subvert a state's duly elected government.

Indeed, don't expect to see any of your favorite pro football players carrying posters of Hitler or trying to shut down lawful government. Even if you don't like what the NFL players are asking for, compared to the teachers in Wisconsin, they are pursuing their goals in a dignified, respectful way. Thanks, guys, for upholding a higher standard in collective bargaining. And thank you to all you Wisconsin teachers who are dedicated to your students and don't support your union's mandatory shakedowns.

Imperfect Justice in Snyder v. Phelps

On March 2, the Supreme Court issued a decision in the case Snyder v. Phelps that illustrates the difficulty of balancing competing claims to rights and justice in our judicial system.

The court overturned a lower court's $5 million tort judgment against Pastor Fred Phelps of the Westboro Baptist Church of Topeka, Kansas, for invasion of privacy and inflicting emotional distress on the Albert Snyder family.

In case you haven't heard, Phelps and his little band of coreligionists had chosen the funeral of Mr. Snyder's son, Matthew, a Marine who perished in Iraq, to hold up signs containing such niceties as "God hates you," "You're going to hell," and "Thank God for dead soldiers." Phelps opposes and condemns various public policies (e.g., gays in the military) and private matters of conscience (e.g., religious affiliation, in this case, the Phelps family's Catholicism). In Snyder v. Phelps, the Supreme Court ruled 8-1 that the First Amendment right to free speech trumped the relevant tort doctrines under which Phelps had been found at fault.

I rarely play Monday morning quarterback after a Supreme Court decision. I am not a lawyer, nor do I know all the facts and pertinent legal precedents of this case. There were multiple legal issues, each with its own complexities, raised in this case (e.g., infliction of emotional distress, invasion of privacy, civil conspiracy, states' rights, etc.). I acknowledge the immense difficulty of coming to a single "right" ruling. I believe that all nine justices acted in good faith. It seems to this observer, though, that the opinion of the dissenting justice, Samuel Alito, was superior to the majority's position.

All nine justices emphasized our right to free speech - a right that some powerful Americans have sought to curtail. If we are to remain a free people, we cannot censor words or ideas just because they are ugly, unpopular, revolting, venomous, or abhorrent.

However, that does not mean that offensive language can be used anywhere or anytime. For example, we rightly bar people from walking into kindergarten classes and dropping a string of f-bombs. Such restrictions don't endanger our precious liberty.

Similarly, I concur with Associate Justice Alito's opinion in Snyder v. Phelps that:

Allowing family members to have a few hours of peace [at a funeral] without harassment does not undermine public debate.

Alito really nailed the issue with this statement:

In order to have a society in which public issues can be openly and vigorously debated, it is not necessary to allow the brutalization of innocent victims.

Perhaps I am guilty of wanting to have my cake and eat it too, but can we not have both a right to express our beliefs and also have government fulfill its primary purpose of protecting individuals from acts of aggression? Make no mistake about it: The Snyder family was the target of a deliberate, pre-meditated, unprovoked assault.

The Snyders had done nothing to Phelps. The Snyders weren't responsible for any of the national policies to which Phelps objects. Matthew Snyder's funeral was a private family matter, not a public event. Don't the Snyders - indeed, all Americans - have a right to be protected from hurtful, unprovoked, sadistic assault? Does our Supreme Court want to turn the First Amendment into a license for anyone to intentionally inflict emotional anguish on a grieving family at a moment of maximum vulnerability?

Yes, Phelps has rights, but so do the Snyders. And yet, in Snyder v. Phelps, the Snyders' rights were abrogated for the sake of Phelps' rights. Surely American jurisprudence is broad enough to protect both Phelps' right of free speech and the Snyders' right to protection. As Justice Alito wrote in his dissent, there are thousands of places at which Phelps and Co. could have had their say without inflicting emotional duress on the innocent Snyder family.

There is a story (whether true or apocryphal, I know not) about a first-year law student who strongly objected in class to a judicial decision that was being discussed. "This is NOT justice!" he exclaimed to his professor. The experienced legal scholar calmly replied, "Young man, if it's justice you want, go across the street and enroll in the divinity school; THIS is the law school."

It seems to me that Mr. Snyder didn't receive justice from the Supreme Court. May he be healed of his pain and find his justice in a court higher than the erroneously named "Supreme Court." *

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Values.

The Debt-Ceiling Dance and the Annual Budget Ritual

Once again it's time to talk about raising the statutory limit on the U.S. government's debt - the so-called "debt ceiling." Treasury Secretary Timothy Geithner has estimated that Uncle Sam will reach the debt ceiling before Tax Day, possibly even before the end of March.

Even earlier, on March 4 to be precise, the current appropriations resolution that is funding government spending will expire.

Are these two stories giving you a sense of dj vu? They should. These two closely related issues are perennial events. Congress has raised the debt ceiling 74 times in the past 70 years, and, of course, passing an annual budget is necessarily an annual event.

The same two sides square off against each other on both issues. On the one side are the (relatively) fiscal conservatives, the so-called "deficit hawks," the belt-tighteners; on the other are the budget-busters, the "deficit doves," the big spenders.

The big spenders are riding a long winning streak. Every time federal debt has reached the debt ceiling, Congress has raised it.

Prediction: There may be some fireworks first, but Congress will soon raise the debt ceiling again, and raise it significantly. Look at the numbers: President Obama has mentioned a possible $30-billion reduction in spending from a pending $1.65-trillion deficit this year. Speaker Boehner has countered with a proposal that is doubly large: $61 billion. One is tempted to say that the hotly contested debate between shrinking the deficit 2 percent or 4 percent is a tempest in a teapot.

Let's look at the numbers another way: Even if $61 billion ends up being trimmed from the budget, Uncle Sam will still spend over $3.6 trillion this year. Here's a trivia question for you: Who was president when Uncle Sam spent $2 trillion in a year for the first time? Give yourself an "A" if you answered George W. Bush.

Federal spending has nearly doubled in the last decade - a decade of anemic economic growth, as is the rule when government expands at the expense of the private sector. Obama has talked about hitting "reset" buttons on other issues. Why not get serious about runaway government and reset federal spending to where it was, say, five years ago? The sad thing is, even such a gigantic pruning as that would still leave Congress having to raise the debt ceiling, because the deficit would still be enormous, further adding to the national debt.

Every year, we go through the same ritual before passing a red-ink-drenched budget. Deficit hawks protest the immorality of burdening the next generation with debt and warn of potential catastrophe if the government goes further into debt. What they are up against is this: There are far more lobbyists defending specific dollars of federal spending than there are in favor of cutting them, and besides, the big spenders don't worry about deficits because national bankruptcy serves their agenda. Perhaps someday there will be enough tea partiers in Congress to force across-the-board cuts or eliminate rafts of federal agencies, but not yet.

As for the debt-ceiling dance, it, too, follows a familiar pattern. The belt-tighteners warn of eventual chaos when the federal debt finally reaches a breaking point; the big spenders warn of the immediate inconveniences that would result from failing to raise the debt ceiling, and thereby partially shutting down government.

In what amounts to a high-stakes game of "chicken," the big spenders always win, because the fiscal conservatives always blink. They know that a majority of the public fears the disruption of a government shutdown today more than they do a potential major upheaval at some unspecified date in the future. We fiscal conservatives have come across like the boy who cried, "Wolf!" We have warned about the perils of red ink for years, but Armageddon hasn't come. I think we will be proven right eventually, but we can no more foretell when the federal debt will blow up than we can predict which straw will break the camel's back.

Have you asked yourself why we are debating raising the debt ceiling above $14.3 trillion? Answer: because earlier congresses didn't rein in spending and curb the national debt at $10 trillion, $5 trillion, $1 trillion, or less. The big spenders always prevail in the annual budget ritual and the debt-ceiling dance. Someday, we will mourn that fact.

Wisconsin Unions vs. Governor Walker: A Battle for the Soul of America

Editor's note: A version of this article was first published by the Christian Science Monitor.

It is hard to overstate what is at stake in the dramatic showdown between Wisconsin's teachers and their Republican governor and legislature. The political and economic course of our country hinges on how the issue of public-sector unions is resolved, in Wisconsin and elsewhere.

For the sake of our country's political and economic future, Gov. Scott Walker and his Republican colleagues need to prevail in the current contest with the Wisconsin teachers' union and their allies.

That isn't easy for me to say. As an educator, I have great respect for all those (and they are many) in my chosen profession who capably and even brilliantly serve our nation's youth. The fact is, though, that the status quo is untenable.

The budget crunch isn't merely a projected crisis some 30 years in the future. Right now, several state and local governments are careening toward fiscal disaster. There are many factors, of course, but a major one is that retirement plans for public-sector workers are spectacularly underfunded, perhaps by as much as $3 trillion nationwide.

Governor Walker is being cast as the ogre for proposing to avert the onrushing flood of red ink, but the blame properly belongs to his predecessors who made unaffordable and unkeepable promises. All but the most zealous ideologues will admit that you can't spend what you don't have, and even some Wisconsin teachers are now indicating a willingness to help balance the state's budget by contributing more to their pension and health benefits.

Politically, this battle is the ultimate partisan clash. Unions and the Democratic Party are joined at the hip. Unions collect mandatory dues from their members, then contribute massive financial and human support to the electoral campaigns of their political allies (overwhelmingly Democrats). Democrat office-holders repay these favors by granting unions generous legislated benefits, both monetary and in the form of rules that strengthen the political power of union officials. Wisconsin's Democratic senators took the extraordinary step of fleeing the state in what appears to be a desperate ploy to preserve the flood of union money coming to them, while Republicans seem every bit as hopeful of reducing the flow of tax dollars to their political opponents.

Indeed, it is the use of tax dollars to lobby for more government spending, and thus for more taxes, that is the crux of the problem. Public-sector unionism is the ultimate conflict of interest, because the necessary objective of these unions is to capture control of the very legislatures that vote on their compensation packages.

Even the strongly pro-union Franklin Roosevelt believed that key tactics employed by private-sector unions were inappropriate for workers on the public payroll. In his words, "The process of collective bargaining, as usually understood, cannot be transplanted into the public service" due to "distinct and insurmountable limitations."

I share FDR's conviction that, in a government of the people, by the people, and for the people, those who work for the government must be servants of the people. When public-sector unions threaten to withhold their services unless the taxpayers, through their elected representatives, pay up, it creates a process of political extortion by which the majority of citizens is made subservient to the public-employee minority. This is the way things work under feudalism or socialism, but is the exact inverse of the proper order in a truly democratic republic.

Some have called the Republican proposals in Wisconsin "union busting." This is inaccurate. Walker is proposing to reform unions, not to abolish them. He seeks to make the payment of union dues voluntary instead of compulsory.

If teachers believe that what the union leadership is doing is worthwhile, they can continue to support those activities through voluntary contributions. If, on the other hand, Republican teachers would rather not contribute to Democratic candidates, they could follow their conscience and opt out. In a democratic republic, people should be free from being coerced into supporting candidates and causes to which they are opposed.

What is really at stake in the Wisconsin donnybrook is whether individual liberty or government power has the upper hand in our country. We are witnessing a battle for the soul of the republic.

America's Debts: Even More Calamitous Than We Thought

Brace yourself. This isn't going to be pleasant. If you're in a bad mood or get easily upset, you may wish to pass on reading this article.

The country is in even worse shape economically than we thought. We awoke on Feb. 14 to find that this year's federal budget deficit is going to be larger than previously projected - a record $1.65 trillion.

Recently, the official accumulated debt of the federal government passed the $14 trillion threshold. A trillion is a gigantic number. If you stacked $100 bills flat on top of each other, then turned that stack on its side, a trillion dollars would stretch from where I live in western Pennsylvania to somewhere past St. Louis. That's just ONE trillion. Multiply that by 14, and it would stretch from here to Honolulu and back with plenty to spare.

The really bad news is that Uncle Sam's debt is significantly greater than $14 trillion, and I am not referring to the tens of trillions of dollars of unfunded liabilities representing undeliverable government promises. According to data released by the U.S. Treasury on January 21, the public debt is $20.7 trillion, an increase of $3.3 trillion in just the last year.

The larger sum - actual existing debt of $20.7 trillion - includes such off-budget items as bailouts, Fannie Mae and Freddie Mac, student loans, and who knows what else? I have to say "who knows what else," because the leviathan federal government long ago became too large to keep track of. For example, 25 years ago the Grace Commission, instituted by Ronald Reagan in the hope of identifying ways to streamline the federal government, was unable to tabulate how many people worked for the federal government, although they did manage to identify 963 federal programs that redistributed wealth.

Not only is our current national indebtedness more than 40 percent greater than the already horrendous commonly cited figure, the Social Security program is in worse shape than expected, too. As recently as a month or two ago, it was widely accepted that payouts from Social Security would start to exceed revenues in 2016. In a stunning development, the nonpartisan Congressional Budget Office released a report on January 26 which projected that revenue shortfalls will begin this year and continue uninterrupted until all unfunded IOUs are exhausted by 2037 (if not much sooner). The CBO projects what would have been a $45 billion shortfall this year, but thanks to the terrible deal that President Obama and congressional Republicans forged in December - the one that included a 2-percent reduction in Social Security withholding from workers' paychecks - this year's Social Security red ink is expected to hit $130 billion.

At the state level, finances are deteriorating at a sickening speed. Governors are starting to ask the Obama administration for permission to drop people from Medicaid (280,000 people in Arizona alone). Moody's, the debt-rating agency that seems to wait until after a collapse has happened to lower its rating of an entity's finances, is making noises about downgrading the credit rating of several states.

At the municipal level, many bonds continue to tank as municipalities careen toward bankruptcy. Of the three largest bond insurers, two are already bankrupt while the survival of the third is in doubt.

Meanwhile, Obamacare is ripping us apart. The administration itself has already granted over 200 waivers to well-connected businesses and labor unions from having to comply with its unaffordable costs (meaning that wealth is being redistributed from those who don't receive the exemptions to those that do).

Two federal judges have upheld Obamacare while two others have ruled it unconstitutional. The result is that some state governors and attorneys general are voiding it within their jurisdictions while others are not. Obama is proceeding with costly implementation despite the bill's uncertain status. Besides the confusion and uncertainty that this is sowing, valuable time will be consumed in waging this titanic constitutional struggle - time that could and should be spent addressing the ballooning spending/debt crisis.

Given the magnitude of governmental fiscal woes, the struggle in Washington between Democrats who talk about (but don't propose) a possible spending freeze in one small corner of the federal budget, and Republicans who claim to want to cut $100 billion of annual spending, is a cruel joke. Talk about fiddling while Rome burns!

The financial condition of governments at all levels is worse than it ever has been. Neither political party seems ready to address the crisis in any meaningful way. As a result, our financial predicament is even worse than most of us had thought.

Hu's in Town, Time to Talk "Money"

China's President Hu Jintao is visiting the United States this week [This article was published on January 19]. This means we can count on two things: 1) a proliferation of Hu/who jokes (think: Abbott and Costello, "Who's on first?"); and 2) disputes about the respective monetary policies of the two countries.

Chinese officials gripe about the Federal Reserve's cheap-dollar policy. American officials denounce China's policy of preventing the yuan from appreciating vis--vis the dollar. The fact is that both China and the United States are currency manipulators. Like a dysfunctional couple, the two constantly squabble, each complaining about the other's shortcomings while ignoring its own.

In this latest round of bickering about currencies, Hu told reporters that the dollar's dominance in the world currency markets is a "product of the past."

Literally, this is indisputable. In 1944, the Bretton Woods agreement established the dollar as the international reserve currency. What rankles some Americans, though, is Hu's clear implication that dollar dominance is a relic of the past, that the buck is a "has-been" in terms of suitability for serving as the world's reserve currency.

While we may resent a foreign leader taking this stance, Hu is correct. At the time of Bretton Woods, the adoption of the dollar as the anchor for the global monetary markets made sense. The United States accounted for more than a third of the world's economic production, had abundant gold reserves backing our currency, and expressed a readiness to redeem dollars for gold that made the dollar "as good as gold."

The situation has changed radically since then. As other countries experience explosive economic growth, U.S. dominance correspondingly diminishes. Even more to the point, this isn't your grandfathers' dollar. It has been nearly 40 years since President Nixon reneged on our solemn promise to redeem paper dollars with gold upon demand by our foreign trading partners. Decades of government over-spending and currency debasement have produced a diminished, sickly dollar that - far from providing stability to global currency markets - produces uncertainty, disruptions, and losses throughout the global economy.

At some point, the dollar will cease to function as the world's reserve currency - not because of any demands by Chinese leaders, but of necessity. The dollar is on a path of self-destruction and foreigners will not passively sit still and go down with a sinking ship.

Looking ahead, President Hu stated that he desires a "fair, just, inclusive and well-managed international financial order." That sounds reasonable enough. But what constitutes a "well-managed" international financial order? Are there central bankers in other countries who could manage the system better than the Fed? Since China's central bank has increased its money supply by 180 percent in just the last five years, I wouldn't trust them to manage a currency well. (Despite cranking up their printing presses, the Chinese are trying to blame us for the inflation that they are currently suffering!)

Unfortunately, neither American nor Chinese officials are considering the two reforms that are needed in order to establish a viable international monetary regime. They are not only "off the table," but off the radar screen.

The two insuperable problems that afflict the international monetary order today are the acceptance of fiat currencies and government monopolies. It is impossible for a country, let alone the entire world, to build a durable monetary order on the weak foundation of an un-backed paper currency. Indeed, history demonstrates that fiat currencies inevitably end up being worth exactly what they are - insignificant scraps of paper. And if you ever have wondered why consumer products get better and better over time, while our money - the most commonly traded good of all - continues to deteriorate in quality, the answer is simple: The former are subject to competition and consumer choice, while government's money monopoly denies consumers a choice. People pick good stuff over bad stuff when free to choose, but governments deny us that freedom and instead impose on us the most pernicious monopoly of all - a monopoly on money.

If President Hu and American leaders truly want a well-managed international currency regime to emerge, they need to make these two reforms: 1) repeal legal-tender laws so that free competition can determine what will be used as money; and 2) have a separation of money and state comparable to our separation of church and state (what Nobel Prize-winning economist F.A. Hayek called "the denationalization of money"). Human governments have never demonstrated the honor and integrity needed to preserve the purchasing power of the money they issue, and the world is poorer as a result.

Welcome to America, Mr. Hu. I'm sorry that your dialog with American leaders about money will be such a waste of time.

The New-Old Barack Obama

The 2012 presidential campaign has begun. Not being a political junkie, it gives me no pleasure to report this phenomenon. And no further proof of this assertion is needed than Barack Obama's tactical shift.

You may recall, during the first two years of his presidency, Obama's statements that he didn't care if he turned out to be a one-term president. So dedicated was he to his progressive agenda, so desirous was he of ushering in an era of permanent big government, that he refused to compromise with Republicans, conservatives, Tea Party activists and other assorted atavistic types. He would build a progressive utopia or get voted out of office trying.

My, how a mid-term electoral "shellacking" changes things. Since November, Obama has seemed to be moving toward the political center. There can be only one possible explanation for this apparent transformation: The man wants to be re-elected, and will do what he has to do to achieve his goal.

Even before the New Year dawned, President Obama swallowed his egalitarian pride and accepted a two-year extension of the Bush tax cuts. This was an outstanding deal for Obama, enhancing his plausibility as a moderate while receiving Republican support for hundreds of billions of dollars in spending that benefit Democratic Party special interests.

In the first week of January, Obama replaced, as chief of staff, the partisan pit-bull Rahm Emmanuel, with the more moderate (at least, in tone) Bill Daley.

In his State of the Union address, Obama played to the middle, paying lip service to free enterprise while making the case that it's up to government to ensure future prosperity. His call for a five-year freeze on "discretionary spending" was brilliant. While wooing independents and moderates with his talk of fiscal restraint, he must have delighted his leftist allies with his proposal to make the Pentagon bear the lion's share of spending cuts. (A pre-speech release went so far as to describe defense spending as "nonsecurity" spending, but somebody wisely deleted that gaffe from the final version).

According to Obama's own calculations, this freeze will realize savings of $400 billion over the next decade. That sounds like a lot, but it amounts to less than one percent of planned spending.

Reversing his earlier opposition to bi-national trade agreements, Obama has begun to push for ratification of long-pending trade deals with Panama, Colombia, and South Korea. These deals make economic and political sense. They should help contribute to economic growth - always a plus for a president seeking re-election - and will enable Obama to portray himself as more pro-business.

If gas prices rise to $4 per gallon, don't be surprised if Obama reverses his administration's two-year-old policy of stifling domestic oil production. His team will, of course, spin this as a heroic Obama riding to the rescue, when, in fact, the prudent policy would have been to unleash domestic producers from day one of his term.

Obama's strategy is masterfully conceived. It is a classic "two steps forward, one step back" tactic for advancing his larger progressive goal of increasing the federal government's power over the distribution of wealth in our society.

Some of his leftist supporters, less mature and less canny than the president, have already started to howl in protest of his perceived move to the center. This can only help Obama to appear more centrist, and disguise the fact that his compromises are relatively minor concessions.

If Obama were to continue trying to ram through his big-government agenda after the mid-term election, he would have sealed his fate as a one-term president and triggered a conservative backlash. Instead, he is positioning himself to win a second term and so solidify his progressive agenda.

Obama, to his credit, has learned patience. He wants four more years to empower unelected bureaucrats to extend their stranglehold on the economy, four more years to appoint federal judges and Supreme Court justices who share his disdain for the Constitution's restraints on executive power, four more years to veto any legislative attempts to reverse the trend toward bigger government.

Democrats should take heart and Republicans had better watch out. This man means business, and he is already doing what he does best: campaigning. The "new Obama" that some people see is really just the old Obama - a clever, driven politician committed to a permanent expansion of government power.

The Economics of the State of the Union

The news from Egypt has thrust President Obama's State of the Union off the front pages. While that news is critical, so is further analysis of the State of the Union, especially from an economic perspective. My previous column focused on the political dimensions of the State of the Union address, about how Barack Obama has already entered full campaign mode in an attempt to woo the 5 or 10 percent of the swing vote that he needs for re-election. Today, let's look at the economic aspects of the speech.

One would hope that, after two years of failed policies and economic stagnation, President Obama would have seen the need for a changed economic strategy. Alas, beyond a few cosmetic touches, Obama's approach to economics remains substantially unchanged.

Here are a few examples:

In the address, Obama stated a self-evident truth: "None of us can predict with certainty what the next big industry will be."

Agreed. But then, apparently unaware of the incongruity, the president proceeded to advocate increased government funding to three specific industries: biomedical research, information technology, and clean energy. So deeply ingrained is Obama's love of central planning, so confident is he in his ability to foresee what future generations will need, that he specifically called for 80 percent of electricity to come from renewable energy sources by the year 2035, as if anyone knows what relative costs will be or what new technologies will be available that far ahead.

Indeed, President Obama seemed blithely unaware of the sad history of federal support for alternative energies - wasteful boondoggles, such as Synfuels and ethanol. At least he was consistent, though. He also appealed for federal support of high-speed railroads, another industry in which the federal government already has shown its incompetence. In the 1800s, there was only one railroad connecting the Midwest to the Pacific Coast that did not go bankrupt - James J. Hill's Great Northern, notable for being the only such railroad not to have received federal subsidies.

Obama stated the obvious truth that Uncle Sam's deficit spending is "not sustainable."

How could he say this with a straight face when the current fiscal year's deficit is projected to be $1.65 trillion - an all-time record? How serious is he, given that he offered only two specific areas for spending cuts: defense spending and subsidies to oil companies?

Well, he did say something about cuts for community action groups, but since ACORN is drowning in criminal charges, cutting spending there was a foregone conclusion. And, for the record, I support withdrawing all subsidies for oil companies. But let's withdraw taxpayer-funded subsidies from all energy producers. Percentage-wise, the subsidies for wind and solar are many times as great per kilowatt of energy than they are for oil. Amazingly, President Obama wants to increase subsidies to - actually, he uses the words "invest in" - those wretchedly uneconomic forms of energy.

The president mentioned a government loan to a company that became successful. Fine. But private loans are just as capable of starting businesses and creating jobs, and they do it without dipping into the taxpayers' pockets. Government doesn't need to be "encouraging investment," as Obama said; rather, government should stop discouraging investment and job creation, which it does when it siphons precious resources from the productive private sector.

Let's have "a government that is more . . . efficient," proclaimed President Obama.

Sounds good, but how? Government bureaucracies, insulated from the profit-loss discipline of competition, are inherently inefficient. Why single out the Pentagon for spending cuts? ALL bureaucracies are wasteful. That's the nature of the beast. If he really wanted a more efficient government, Obama would have recommended the elimination of specific agencies and bureaucracies.

Obama called for more government "investment" in infrastructure. (At least he's not calling it this kind of spending "stimulus" anymore.)

Yes, infrastructure clearly needs some repairs, but I don't trust Team Obama to do it right. I'm mindful of the nearby exit ramp that was widened to two lanes as part of Obama's stimulus package, even though it is so lightly used that mine is usually the only vehicle on it.

Obama promised a new website that would show us where our tax dollars are going. When I recall how inaccurate was his stimulus/jobs website, my response to the president is, "No thanks, save the money."

The State of the Union address showed an appalling ignorance of basic economics and the lessons of history. Sadly, President Obama still thinks like a central planner, even as he seeks to widen his appeal to the middle. He is decades behind the times. His is the path that leads to stagnation.

Honoring Reagan's Memory in the Most Honorable Way

It is fitting that we are pausing to remember President Ronald Wilson Reagan on the centennial anniversary of his birth this February, a month that also includes Presidents' Day. There continue to be many poignant remembrances and fitting tributes to our 40th president. Indeed, the Gipper accomplished much, and we, his countrymen, are grateful.

One of Reagan's greatest accomplishments was engineering our victory in the Cold War. And one of the key factors that made this victory possible was Reagan's deep understanding of economics. He knew that the Soviet economy was brittle, weak, moribund. He knew that it couldn't hold up in an arms race against our vibrant free-market economy.

In hindsight, the decrepitude of the Soviet Union's centrally planned socialist economy is obvious, but it was by no means so in the 1980s. Believing the Iron Curtain's propaganda lies and a Potemkin village appearance of prosperity, many intellectuals, experts, and Sovietologists believed that socialism was the wave of the future. In the 1980s, the CIA reported to Reagan that the Soviet economy was vigorous and thriving. The Nobel prize-winning economist, Paul Samuelson, confidently wrote that the Soviet economy was booming and quickly catching up to the United States.

How could Reagan be so sure that he was right when most of the experts were saying that he was wrong?

The answer lies in the fact that Ronald Reagan understood economics better than any other American president. Reagan was influenced by the economic writings of Grove City College professor Hans F. Sennholz. He also read The Freeman, the monthly publication of the Foundation for Economic Education (it still exists today). This means that Reagan was familiar with the Austrian school of economics - the only school that has supplied a logical proof of why socialist economies are inherently self-destructive and doomed to fail.

The Austrian economist Ludwig von Mises, in his 1922 masterpiece, Socialism: An Economic and Sociological Analysis, had demonstrated logically the impossibility of rational economic calculation under central planning. Anyone who grasped that theory would know, as Reagan did, that the Soviets' centrally planned economy was programmed for stagnation and decrepitude - that it was a paper tiger, and all we had to do to prevail against the Soviet challenge was to stand firm and keep our government from crippling our economy the way the Soviet government had crippled theirs.

This points to a scandal, perhaps a tragedy, today. As we commemorate the life of a great president whose understanding of the superiority of the private-property order over socialism contributed so much to freedom and prosperity, both at home and abroad, in the aftermath of the Cold War - the economic understanding that was one of the key pillars of Reagan's philosophy and policies remains largely unknown today. The Austrian analysis of socialism - one of the greatest advances in economic science and one of the keys to understanding the 20th century - remains untaught except at Grove City College and on a few other campuses. As a result, Americans elected a president who is doing his best to take us in a socialistic direction - the direction of economic suicide.

As we pay tribute to Ronald Reagan, we look back at an era when people around the world voted with their feet for capitalism over socialism. Refugees fled from East Germany to West Germany, North Korea to South Korea, and mainland China to Hong Kong - always away from less freedom and prosperity toward greater freedom and prosperity.

Human beings still have the same preference and make the same choice today. Sadly, though, today businesses and individuals are leaving the United States in favor of less economically oppressive locations.

Demagogues on the left denounce these people as traitors for rescuing their property from government's redistributive plans. The rest of us should regard this phenomenon as a warning sign that, for the first time in American history, a significant number of people are leaving America so that they can be economically freer.

If we really wish to honor Reagan's memory in a meaningful way, then let us reverse the Big-Government policies that are driving productive citizens out of our country. Let us remember Reagan's lesson that government is the problem - not the solution - to our economic challenges. Let us re-establish America as the land of liberty, the favored destination of those who love liberty. Ronald Reagan would be honored to be honored in that way. *

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Values.

New Year's Resolution: Stop the Fiscal Insanity

As we enter the new year, the financial landscape is littered with essentially bankrupt governments. Governments at every level are in dire financial straits. During the last decade's governmental spending binge, total state and municipal bond debt has nearly doubled to almost $3 trillion, while federal debt rose over 150 percent from under $6 trillion to almost $14 trillion.

Several dozen cities, including Harrisburg, Los Angeles, and Detroit, teeter on the brink of insolvency. Municipal bonds, once considered ultra-safe, are approaching junk status.

State governments from coast to coast are broke. From Republican Governor Chris Christie's New Jersey on the east coast to incoming Democratic Governor Jerry Brown's California on the west coast, the piper wants to be paid for years of fiscal profligacy. Illinois is six months behind in paying its bills. Cash-strapped Arizona sold the state capitol, supreme court, and legislators' office buildings to private investors. According to "60 Minutes," since the Great Recession started in 2008, state governments have spent a half-trillion dollars more than their revenues (despite constitutional prohibitions of deficit spending).

The federal government, of course, is the most indebted of all. In addition to the explicit debt of nearly $14 trillion (current figure available at www.usdebtclock.org), Uncle Sam has tens of trillions of dollars in unfunded liabilities. Interest rates on Treasury bonds have risen sharply recently, as investors (most notably the Chinese) have started to dump them.

Given this grim state of affairs, states and cities are looking for ways to tighten their belts. Not Washington, though. Consider the December deal between President Obama and congressional Republicans to prevent tax rates from rising: This bipartisan deal blew a three-quarter-of-a-trillion-dollar hole in the federal budget.

In exchange for keeping personal income-tax rates unchanged for only two years, Republicans assented to an unaffordable spending splurge. Among other concessions, the GOP agreed to over $50 billion for extended unemployment benefits. The deal doles out billions in subsidies to the economically uncompetitive and environmentally harmful ethanol industry at a time when even Al Gore admits that ethanol subsidies are indefensible. (The Obama-GOP coalition also propped up the wind-energy boondoggle.)

Even more shocking, Republicans acquiesced to Obama's reckless plan to reduce FICA withholding from workers' paychecks from 6.2 percent to 4.2 percent. Social Security payouts will soon exceed revenues within the next few years; yet, instead of measures to shore up cash flow, we get an agreement that weakens the system. I agree with Representative Earl Pomeroy (D-ND), who warned:

When you start to signal that the [Social Security] tax levels are negotiable, you end up in long-term trouble . . . in terms of making absolutely certain that the entitlement funding streams are secure.

It's easy to understand why progressives (President Obama, ex-Speaker Pelosi, the labor unions, et al.) support reducing workers' Social Security contributions. Favoring a major redistribution of wealth, they intend to solve Social Security's inevitable cash crunch by grabbing money from other sectors of society, perhaps even by nationalizing private retirement accounts, as some progressives already have advocated.

Why, though, did Republicans concede to Obama's unaffordable budget-busting spending wish list? It is because they are mired in the same political mindset that got us into our current bankrupt condition. The Republicans wanted to show that they are willing to give a little to get a little, to prove to critics that they aren't intransigent or obstructionist. This is a mistake.

With governments going broke, we literally cannot afford politics as usual. We face financial ruin accompanied by some catastrophic mix of monetary breakdown, economic collapse, and social unrest. When a maniac is about to drive the car you are in over a cliff, you don't make a deal to reduce your speed from 60 mph to 30 mph; you either stop or proceed onward to your doom.

Nobody knows where the point of no return is, or which spending straw will break government's fiscal back. The only way to find out is by hitting that point and plunging into the resulting vortex. I suspect that most Americans would rather not find out where that breaking point is.

It's time for a paradigm shift -- no more Mr. Nice Guy, no more compromises with bankrupt and bankrupting policies. Reducing government spending before it is too late isn't a matter of political preference, but of economic imperative.

For decades, the political debate has been between those who want to expand government enormously versus those who wish to increase government moderately. That bankrupt political paradigm has produced bankrupt governments. A new paradigm for fiscal sanity would be a political contest between those who favor cutting government spending a little or a lot. The Tea Party movement notwithstanding, nothing fundamental has changed in Washington. We and our bankrupt governments are due for a day of Reckoning.

On Reading Aloud in Congress

Opening the 112th Congress by having a succession of representatives read the Constitution aloud on the floor of the House was a worthwhile exercise, despite heated criticism to the contrary.

If nothing else, it showed how little respect many members of Congress have for the supreme law of our republic. Fewer than half the members even bothered to be present during the reading.

Some members groused about what a waste of time it was, sniffing that it was cheap grandstanding. Perhaps it was. We won't know until we've had time to see whether Republicans actually uphold the Constitution with their votes.

Nonetheless, the most bizarre criticism was that of Rep. Jerrold Nadler (D-NY) who denounced the reading of the Constitution as "propaganda."

The most comical (tragi-comical?) protest came from Rep. Jay Inslee (D-WA), who tried to delay the reading on the grounds that Congress hadn't had 72 hours to review the document in question. Seriously. This was hypocritical, since Democrats routinely ignored the 72-hour provision during the last two years (e.g., the non-stimulus and Obamacare). It was also ludicrous, since one would have assumed that all members of Congress are familiar with the Constitution, since they have solemnly sworn to uphold it.

The resistance by Nadler and Inslee to reading the Constitution was not an aberration, but indicative of the deeply entrenched disdain that many progressives have for it, even as they publicly proclaim their admiration.

Consider: President Obama has long lamented that the Supreme Court "didn't break free from the essential constraints that were placed by the Founding Fathers in the Constitution," thereby making the redistribution of wealth more difficult than Obama would like it to be.

Erstwhile Speaker of the House Nancy Pelosi, when asked whether her proposed healthcare reform bill was constitutional, reacted with shocked incredulity that anything she wanted could be unconstitutional, expostulating, "Are you serious? Are you serious?" (Notably, now that U.S. District Court Judge Henry Hudson struck down the individual mandate component of Obamacare as unconstitutional, one sees that the constitutionality of a bill is indeed a serious matter worthy of Pelosi's consideration.)

Last year, Senate Majority Leader Harry Reid inserted this language into the pending healthcare bill:

It shall not be in order in the Senate or the House of Representatives to consider any bill, resolution, amendment, or conference report that would repeal or otherwise change this subsection.

It appears that Sen. Reid is one of those who most needs to listen to the Constitution, because if he read it, he would see that it is unconstitutional to ban changes in our laws, and that the Founders had no desire to tell us how we should govern ourselves today. In fact, Reid would know that if he paid any attention to the annual reading in Congress of George Washington's Farewell Address. Here is what the father of our country, that wise and virtuous patriot, said:

The basis of our political systems is the right of the people to make and to alter their Constitutions of government. But the Constitution that at any time exists, 'till changed by an explicit and authentic act of the whole people, is sacredly obligatory upon all. . . . If in the opinion of the people, the distribution or modification of the Constitutional powers be in any particular wrong, let it be corrected by an amendment in the way which the Constitution designates. But let there be no change by usurpation; for though this, in one instance, may be the instrument of good, it is the customary weapon by which free governments are destroyed.

It's time to quit ignoring our Constitution as the three branches of government so frequently do. Let's get back to basics in government. Last week was believed to be the first time that the complete Constitution had ever been read in Congress. Let's make reading the Constitution in Congress an annual event, as it is for Washington's Farewell Address.

In fact, let's make reading bills aloud in their entirety in both legislative chambers mandatory and require members to be in attendance before they can vote on them.

"But wait!" you protest, "there aren't enough minutes in a year to read all that verbiage." Right you are. That would be one way to try to shrink our leviathan government back to a manageable size and constitutional scope.

Perhaps we should consider making it standard operating procedure for all important documents to be read aloud in Congress.

The Tea Party's Uphill Challenge

The Tea Party movement and its millions of supporters have high hopes that the recent elections will rein in runaway government. While I endorse this objective, accomplishing it will be far more difficult than most people realize.

The Tea Partiers will have to contend with more than just a Big-Government president and Senate. They also face well-funded, well-connected, and well-entrenched special interests, plus a public that expects the officials they elect to shrink government and balance the federal budget only if it's the other guy's programs that get cut. Would-be reformers will also have to deal with the larger, permanent, unelected powers that aren't accountable to the people.

The fact is that the United States isn't as democratic as we'd like to think it is. We cherish the idea that the vox populi (the voice of the people) predominates over the will of privileged elites; that government is subordinate to the people (that it serves the people, rather than ruling them); that those in positions of governmental power should be accountable to the people from whom they derive their authority; that government is, essentially, "of the people, by the people, and for the people."

Is that the kind of system we have today? Let's see:

Congress delegated its constitutional prerogative to be the guardians of our money to the Federal Reserve System. Fed Chairman Ben Bernanke & Co. exercise extraordinary discretionary powers that affect us all, yet Bernanke -- arguably the second most powerful person in America -- is unelected and unaccountable to the people.

Key rules by which we live -- most notably, the right to legal abortion -- were created by the Supreme Court, instead of by Congress. Regardless of your opinion about the Roe v. Wade decision, it doesn't seem very democratic that five unelected, unaccountable justices should have the power to establish the rules by which we live.

Perhaps the greatest damage to democracy has been the tremendous amount of power amassed by "the permanent government," the unelected federal bureaucrats.

Consider:

Although the Constitution confers the legislative prerogative on Congress, in a typical year federal agencies will adopt more than 10 times as many legally binding rules as Congress passes laws (3,830 final rules compared to 285 laws in 2008, for example).

The Obamacare bill grants the Secretary of Health and Human Services the authority to determine or define what the legislation means no fewer than 1,697 times, according to a tabulation by Devon Herrick of the National Center for Policy Analysis.

This year's Dodd-Frank financial reform bill gives power to unelected officials to decide which financial institutions live and die. It also adds power to the 115 federal agencies that already shared regulatory supervision over the financial system, and guarantees high-paying federal jobs to all employees of those agencies, despite their failure to protect us from the financial meltdown of recent years.

The EPA has a long tradition of exceeding its statutory authority and seems determined to further cripple the generation of electricity by imposing heavy penalties for carbon dioxide emissions, despite the crack-up of the global-warming myth and the refusal of Congress to restrict CO2 emissions.

Nobody seems to be able to stop the National Labor Relations Board from helping unions to avoid conducting business in a way that is transparent to rank-and-file workers.

These are just a few examples of the power wielded by unelected officials. They are part of what the late economist Milton Friedman termed an "iron triangle": Congress appropriates funds for federal agencies, who, in turn, give grants to citizen-activist groups that then actively lobby Congress for expansions of those programs. Thus is maintained what Friedman and his wife, Rose, labeled "the tyranny of the status quo."

The influx of some new, Tea Party-supported legislators in Congress should make government marginally more democratic. At least we can count on an end to the imperial speakership of Nancy Pelosi, which was characterized by major legislation written behind closed doors (in the middle of the night), ram-rodding bills along partisan lines (before even Pelosi's allies could read them), and refusing to heed the concerns of millions of Americans (by excluding their elected representatives from even having a perfunctory say in Congress' proceedings). That is significant, though incremental, progress.

Will the Tea Party movement be able to tame Big Government in all its undemocratic manifestations? That isn't likely on the strength of just one strong mid-term election. The task ahead is daunting.

Fed Up with the Fed

What happens to a car company that makes crummy cars, a restaurant that serves lousy food, or an insurance company that poorly serves its policyholders? Unless they mend their ways, they lose customers and eventually go out of business. That's how a free market works.

The notable exceptions are entities that enjoy special protection from government. Thus, Uncle Sam bails out select private businesses (e.g., GM, AIG, Fannie Mae); enlarges inefficient government bureaucracies (e.g., FEMA, EPA); and preserves monopolies for poorly performing government-created institutions (e.g., the postal service and the Federal Reserve System).

Let's take a closer look at the Fed. A thorough rethinking of Uncle Sam's central bank is long overdue.

Congress created the Federal Reserve System in 1913 to promote stable money and banking, and to lessen the disruptive ups and downs of the business cycle. The Fed has failed dismally.

Under the Fed's supervision, boom-bust cycles have continued. Three of them -- the Great Depression, the stagflationary period from 1974-82, and the current "Great Recession" -- have been devastating. Bank failures have occurred in alarmingly high numbers. The dollar has lost 95-98 percent of its purchasing power.

Tragically, the Fed appears to have learned little from its mistakes. Its current policy of "quantitative easing" continues its long tradition of creating bubbles by deliberately implementing inflationary policies. Citing the official Consumer Price Index, the Fed justifies its aggressive inflationary QE2 policy by asserting that price inflation is too low.

People living in the real world may disagree. In the last year, the Commodity Research Bureau's food index has risen 27 percent; cotton's price has more than doubled to an all-time high; and oil and gasoline prices have posted double-digit gains. The costs of eating, driving, and wearing clothes are trending higher at the very time the Fed plans to inject hundreds of billions of dollars (trillions, if needed) to prop up Washington and Wall Street.

What concerns me about the Fed's current course (apart from the danger it poses to the purchasing power of our income and savings) is the totally arbitrary way in which it is proceeding. The Fed has arrogated unprecedented discretionary powers to itself.

Indeed, the Fed now has a free hand to create however much money it wants and buy whatever financial assets it chooses, whether government or private or even foreign. There is no oversight or accountability. Even the Inspector General for the Federal Reserve, the Fed's official watchdog, has been left in the dark.

It is anomalous that there should be such a powerful, unrestrained institution as the Fed in our body politic. Its awesome, arbitrary powers make a mockery of constitutional checks and balances; it threatens not only our money, but liberty itself.

The chairman of the Fed is commonly referred to as the second most powerful person in the country. In a democratic republic, should the second most powerful policymaker be unelected?

Why won't Congress at least audit the Fed? Rep. Ron Paul has proposed this for years, but a majority of his colleagues seem afraid to take this simple, prudent step. This is the same Congress that routinely demands microscopically detailed access to the financial records of private-sector corporations. Why the double standard?

If there is going to be a central bank (and that is a big "if"), it needs to have a simpler focus than the Fed's current mission statement. The 1970 amendments to the Federal Reserve Act state that the Fed should "promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." These goals are misguided and unattainable.

First, the premise that the central bank can promote employment is erroneous. It is based on a spurious academic theory called the Phillips curve that posits a supposed tradeoff between inflation and employment. Unemployment is fundamentally a price problem, not a monetary problem; therefore, unemployment can only be cured by the presence of a free market in wages. Employment is not the responsibility of a central bank.

Second, central bank tampering with interest rates is the fundamental cause of the artificial boom-bust cycle; thus, the Fed or any successor institution should forever cease from tampering with interest rates.

Finally, focusing on "stable prices" is looking at the problem backwards. The Fed shouldn't try to influence prices any more than a nurse should influence the readings on a thermometer. The "fever" that causes prices to rise and purchasing power to fall is unstable, unreliable money. "Heal" the money, and prices will take care of themselves.

The sole mission of the Fed or any alternative guardian of our country's money should be to preserve the integrity of the monetary unit. That means an end to fiat money and a return to constitutional, honest money. The Fed, as currently constituted, must go.

Dead Man Walking: Dealing with Deflation

To Federal Reserve Chairman Ben Bernanke, deflation is regarded as Public Enemy Number One.

In the words of New York Times columnist and Nobel Prize-winning economist Paul Krugman, the "real [economic] threat is deflation." Krugman advocates additional and even more aggressive government deficit spending.

The normally on-target Ambrose Evans-Pritchard, international business editor of The London Telegraph, favors more "Quantitative Easing" (i.e., a policy whereby the Fed would create trillions of new dollars with which to buy government bonds and other financial junk) to prevent deflation.

Why is deflation -- by which Bernanke et al. mean "widespread declining prices" -- so feared?

First, we must distinguish between benign deflation and traumatic deflation.

In a truly free market with a monetary gold standard, benign deflation would be the norm. Human productivity, unfettered by government intervention, typically increases total wealth several percent per year, whereas it is geologically impossible for the supply of gold (money) to increase at that fast a rate, and so prices tend to trend gradually downward.

The deflation that is possible today is traumatic. It is what economists describe as a "variety-rapid decline" in prices and spending. That kind of inflation triggers an accelerating, self-reinforcing cycle of widespread bankruptcies (both personal and business) and soaring unemployment. Mountains of debt would be vaporized by a chain-reaction of defaults.

Make no mistake about it: We are talking about very hard times here. You can see why policymakers in Washington are scared to death of this kind of deflation. No politician wants to face the wrath of the electorate by having such a wrenching deflationary cycle happen on his or her watch, so they will encourage Bernanke and the Fed to pull out all the inflationary stops to try to avert it.

Before you throw your support behind inflationary policies and hail the Fed and Uncle Sam as our economic saviors, there are two things you should understand: 1) The conditions that make us ripe for a traumatic deflation were caused by the very institutions that now propose to save us from it; and 2) deflation would be the lesser of two evils.

Traumatic deflations are the inevitable aftermath of prior massive inflationary bubbles. A bubble can't burst if a bubble doesn't exist. The sole cause of economic bubbles is government. The Fed's inflationary monetary policies -- holding interest rates artificially low, thereby over-stimulating fundamentally uneconomic investments -- caused the still-deflating housing and mortgage-backed security bubbles. Now, they are currently inflating bubbles in commodities, government bonds, and surely in other markets.

Government's fiscal policies of tax and spend are the other culprits that warp production into unnatural, uneconomic patterns. Fiscal policies in a democratic system suffer from the same inescapable problem that plagues socialist economies: The government cannot know what the people want nearly as well as the people themselves know, and so government inevitably over-stimulates production of things that people wouldn't freely choose while depressing production of what the people do want. Hence, government "experts" make society poorer than it otherwise would be.

Today, due to decades of massive government distortions of economic activity, market forces are impelling us toward deflation. The official policy is that the Fed will try to thwart these market forces by issuing floods of new dollars (i.e., inflation).

Economically speaking, inflation is like heroin addiction. The "highs" are enjoyable, even exhilarating, when bubbles inflate and the good times roll -- but underneath the surface, the health of the system is wasting away. Just as the addict has to suffer the wrenching pains of withdrawal in order to recover his physical health, so our economy needs to endure the short-term pain of a deflation in order to purge decades' worth of malinvestments, uneconomic patterns of production, and unfathomably massive amounts of unpayable debts.

The U.S. economy is a dead man walking -- a zombie on life support. If we don't bite the proverbial bullet and go through a painful cleansing, a healing period of deflation, the ultimate price we pay will be even worse. Like the heroin addict who can't kick his habit and eventually overdoses, someday the Fed will go too far in its inflationary policies. It will ignite a hyperinflation, thereby annihilating the dollar, wiping out the country's capital -- not to mention, the savings of the middle class -- and totally collapsing the economy.

We can pay a painfully high price for past government follies sooner, or an even more horrendous price later. Incidentally, a deflationary cleansing need not last a long time (e.g., Depression of 1920-21, when President Harding opted for market forces over government intervention). However, a quick deflation isn't possible today, because of our policymakers' mindsets. Congress, the president, and Bernanke & Co. believe blindly in government interventions to try to "help" us. They don't understand that such quackery leads to economic ruin.

Honoring Bill of Rights Day -- and Responsibility

December 15 is Bill of Rights Day. [Last] year was the 219th anniversary of the adoption of the first 10 amendments to the United States Constitution -- the Bill of Rights.

Few Americans notice Bill of Rights Day. That isn't surprising, since we have done such a poor job of upholding and abiding by its provisions. (From my perspective, only the Third Amendment is completely intact, while the Seventh, Ninth, and Tenth have been most completely ignored. Check them out for yourself.)

Rather than debate individual amendments, let's consider a more fundamental problem: We poorly understand the elementary concept of rights. Many Americans, both conservative and liberal, further cloud the issue by asserting that responsibilities frequently eclipse rights. We need a correct understanding of both rights and responsibilities.

To the Founders, government's sole legitimate purpose is to protect our rights. The Declaration of Independence specifies two essential points we need to understand about our rights: 1) They are God-given; 2) they are inalienable.

Divine authority is a stumbling block for some Americans, but it is the second point that is the immediate issue. That our basic rights are inalienable means, simply and unequivocally: No person or group of persons, including government, is justified (or authorized: see the Fifth Amendment) in trespassing upon anyone's rights -- that is, in taking life, liberty or property from another -- except via due process of law as a penalty for having harmed or violated someone else's life, liberty, or property. One person's rights end where another person's rights begin. Nobody's rights trump anyone else's.

The clear understanding of our fundamental rights has eroded over the decades. The property right has suffered the greatest damage. Under the influence of progressive/socialist ideas, the traditional American negative right to NOT have somebody take one's property has been corrupted and inverted into a positive premise. Now, people often claim a "right" to have certain things.

One of the most famous examples of this inverted concept of rights was President Franklin Roosevelt's so-called "Economic Bill of Rights." In 1944, FDR asserted that Americans had a "right to a useful and remunerative job," "a decent home," "adequate medical care," "a good education," etc.

Nobody objects to decent jobs, homes, health care, and education, but these good things can't be "rights." If one person has a legal right to have a home, then other people must be compelled to provide that home. That would violate those citizens' rights to their own liberty and property. In other words, "rights" in FDR's sense negates "rights" in the Founders' sense. (This is ironic, since it was FDR who instituted Bill of Rights Day in 1941.) Rights = no rights, a self-evident absurdity.

Critics assert that we have become too "rights-centered" and that we need to strike a balance between rights and responsibilities. This argument is inaccurate and misleading. First, our Republic has always been rights-centered -- after all, we have a Bill of Rights, not a Bill of Responsibilities. Second, no mature adult denies that we have responsibilities. In fact, responsibilities are implicitly inherent in the rights-based vision of our Founders.

Citizens have at least three primary responsibilities in our constitutional, rights-based order: First, to respect the rights of others (first, do no harm); second, to provide for self and dependents (since nobody has a right to anyone else's property); third, to find a way to render something of economic value to others in the social division of labor as the means to be self-supporting.

But don't we have a responsibility to help those who are in need? Yes, we who are in the Judeo-Christian tradition have a responsibility to extend charity to those who are incapable of helping themselves. This, however, is a moral responsibility, not a legal one. We are accountable to God, not to government, for our good works.

It makes no sense to say that those who work hard, are productive, and have savings, have a responsibility to provide for those who shirked that very same responsibility to provide for themselves. That position denies the premise that we all share the same responsibilities. It is to maintain that some competent adults have responsibilities and others don't -- analogous to the earlier point that spurious "rights" override the true rights of others.

The traditional American credo is that we all have equal rights and responsibilities. Progressives and other social engineers, by contrast, believe that government should decide whose "rights" and "responsibilities" receive privileged treatment. Which side of the fence are you on?

Hail to the Bill of Rights! May we always honor and uphold it. *

"The spirit of encroachment tends to consolidate the powers of all the departments in one, and thus to create whatever the form of government, a real despotism. A just estimate of that love of power, and proneness to abuse it, which predominates in the human heart is sufficient to satisfy us of the truth of this position." --George Washington

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Values.

Tough Times Ahead: Gridlock and Quantitative Easing Are Not Enough

Now that the elections are over, attention is turning to the economy.

The stock market rose steadily from the end of August up to the elections. Since the stock market tends to be forward-looking, its recent strong and steady rise suggests that investors have been optimistic. In my opinion, two factors have generated that optimism:

1) The expectation that significant Republican gains in Congress would produce political gridlock, thereby putting the brakes on the Obama/Pelosi/Reid/progressive spending binge.

2) The Federal Reserve's promise of "QE2," a second round of "quantitative easing," the currently fashionable euphemism for creating mind-boggling sums of new money out of thin air.

Sorry to rain on anyone's parade, but I don't believe that gridlock (assuming it happens) and QE2 will be sufficient to turn the economy around. There are several reasons for my tepid outlook.

Surely, gridlock -- a political stalemate between the Democratic president and congressional Republicans -- will change the game. There will be no more enormously expensive and economically crippling legislation, like the mega-non-stimulus and healthcare/insurance reforms that were passed, or the cap-and-trade monstrosity that was barely averted.

To use a medical metaphor, compare the economy to a human body that has been bludgeoned. Obviously, it helps when the bludgeoning stops. But just because additional blows aren't being struck, it doesn't mean the patient is healthy; the patient is still at risk from internal injuries. Our economy urgently needs a trip to the emergency room for radical surgery and intensive care. The government needs to undo the massive damage it has inflicted on the economy over the last several years. It needs to reverse, not merely halt, runaway spending, and to shrink, not just slow, the growth of the federal bureaucracy.

Recently, the Congressional Budget Office released a study projecting total federal spending of $44.5 trillion during this decade. Since we are already choking on $3.7 trillion of spending this year, the implication is that Uncle Sam is on track to spend over $5 trillion in other years later this decade. Will the new Congress, even with the addition of several dozen fiscal conservatives, be able to overcome Obama's resistance to canceling trillions of dollars of planned spending? I doubt it.

Those longing for a return to the economic good times of the 1990s by replicating the gridlock that existed between the Clinton White House and Gingrich Congress need to realize that circumstances are significantly different today. Gridlock tends to preserve the status quo. That was desirable in the mid-1990s, when the economy was healthy and growing; preserving today's economic stagnation, by contrast, is not desirable; it is unacceptable.

Even if Obama and the new Congress surprise us by reducing the annual rate of growth of federal spending to the modest 2.9 percent level that Clinton and Gingrich achieved (highly unlikely, given Obama's ideology), the ticking time bomb of Social Security, Medicare, and Medicaid's unfunded liabilities will continue to push us inexorably onward toward ruin.

At any time, the world's bond investors may demand a higher interest rate to compensate for the risk of insolvency. That would cause the cost of financing our trillions of dollars of debt to soar, consuming hundreds of billions of dollars of tax revenues.

The see-no-evil optimists would say, "Hey, why worry? The Fed will buy all those bonds." That's the purpose of QE2.

The problem here is that bond investors will still demand a higher interest rate to compensate them for the cheapening of the dollar (what we call an "inflation premium") that will inevitably result from the Fed creating so many new dollars to buy the Treasury's debt. In anticipation of QE2, major bond-buyers -- notably the Chinese and PIMCO, the largest American bond fund -- have already started to sell Uncle Sam's bonds. I wouldn't want to bet against PIMCO chief Bill Gross, who is to bonds what Warren Buffett is to stocks. If the exit from bonds becomes a stampede, Katy, bar the door, because QE2 may then go to infinity, as in "hyperinflation." Adios, greenback!

Ben Bernanke has to know that QE2 cannot possibly produce prosperity. QE2 is another instance of "the money illusion" that all Econ 101 students (at Grove City College, at least) learn: Money isn't wealth, and even if the central bank created a million dollars for every single American, we wouldn't be any richer in real terms.

Yes, it's possible that a flood of new dollars may buoy stock prices, but in terms of real wealth and real jobs for Americans in general, lots of luck. Those pinning their hopes for a vigorous economic turnaround on political gridlock and QE2 are likely to be sorely disappointed.

Breakdown

You've probably seen the headlines about major banks suspending foreclosure proceedings to reclaim houses from borrowers who have defaulted on their mortgages. This has the potential to be hugely disruptive -- a milestone development comparable to the failure of Lehman Brothers in 2008, after which all hell broke loose.

Let me emphasize the word "potential." The core of the problem is that there are serious problems in proving who actually has clear, lawful title to specific houses.

This situation arose because of the last two decades' common practice of "securitization" -- the bundling of large numbers of mortgages into a new interest-paying, tradable security. These securities are then sold and resold, often several times. This has lead to widespread confusion. I read of one case in which no fewer than four different firms claimed to own a particular title, and thus the right to foreclose, on the same property.

Because many judges have blocked foreclosure proceedings on the grounds of unclear title, Bank of America, GMAC, and other financial giants have declared a moratorium on foreclosures until the legal picture becomes less muddied.

Some commentators insist that the problem is nothing more than a few technical glitches that can be easily corrected. Others assert that there has been massive fraud, false attestation (attesting to facts without having ascertained those alleged facts), and forgery (creating documents after the fact to produce a fictitious paper trail). Apparently, the states' Attorneys General feel there might be fire among all the smoke, because all 50 of them have initiated investigations, and many of them appear as though they are about to go on the prosecutorial warpath.

If, in fact, the problem is not easily rectified and the various allegations of malfeasance are sustained, here is what is at stake:

We are looking at a breakdown of the housing market. Would-be buyers can't obtain title insurance or loans to buy property without clear title. The country's entire real-estate market could freeze up, further torpedoing home prices and throwing a monkey wrench into the plans of millions of people who want or need to relocate.

The financial industry could break down. Currently, 4.5 percent of existing mortgages are in some stage of foreclosure. If banks can neither collect mortgage payments nor replace that lost income by selling the related properties, losses could be massive, perhaps catastrophic. Then the bailout issue would be back on the front burner.

If courts rule that "robo-signing" -- lenders mechanically signing off on thousands of foreclosures without taking the time to review the facts of each individual case as required by law -- constitutes fraud, then the resulting tsunami of fines and lawsuits could cripple or wipe out many lenders. Here again, would be a breakdown of the financial sector.

If either the housing market freezes up and/or the financial industry cracks up, then the process of economic recovery itself will break down.

If lenders can no longer foreclose on properties, how many millions of other mortgage-holders will decide to stop making their monthly payments? Anecdotal evidence indicates that there are already hundreds of thousands of "strategic defaulters." These are people who can afford their monthly payments, but have chosen to stop making payments, figuring that, at the very least, they can get away with living rent-free for a year or two before getting evicted. These numbers are bound to soar. The whole "strategic default" epidemic represents a breakdown of respect for law and also for the moral code (of honoring contracts) that constitutes the very heart of a viable economy.

The issue of clear legal titles to property is indispensable to a thriving capitalist economy, as the Peruvian economist Hernando de Soto explained in his bestseller The Mystery of Capital. We either restore the clarity and inviolability of titles to property, or our capitalist system breaks down.

At the center of the foreclosure controversy is an entity named Mortgage Electronic Registration Systems. MERS was hatched by Fannie Mae, Freddie Mac, and other giant players in the mortgage business to speed up the mortgage-backed securitization process and bypass various local property laws. If, in fact, MERS trampled on state and local laws, this represents a breakdown of constitutional federalism and a direct assault on the rule of law.

If all of the breakdowns listed above continue unabated, then we are peering over the precipice at a potential breakdown of social, civil, and political order, too. That's the nightmare scenario. Let's get back on track before it's too late.

Reflections on the GOP Pledge

Last week, thirteen Republicans released a "Pledge to America." What is most surprising to me is its length. At twenty-one pages, it was many times the length of the GOP's hugely successful 1994 "Contract with America." Why ditch a winning formula?

Furthermore, our increasingly unpopular president is known for being long-winded, and his progressive allies in Congress are infamous for concocting ridiculously long bills. Wouldn't a simple, concise list of objectives accentuate the contrast between the two parties?

Instead of sticking to the main theme of reining in an insanely expensive and increasingly intrusive government, the pledge was padded with statements designed to rally the traditionally Republican pro-life, pro-military, and small business constituencies. Yes, those areas are important, but the single issue that unites the largest number of Americans today is the concern that if we don't check runaway government soon, we never will. The too-broad pledge ends up being a hodgepodge of cliched sloganeering. It offers superficially bold but often frustratingly vague proposals, occasionally dubious math, and at least one glaring omission.

Here are some examples of the pledge's faults:

It expresses an intent to "make government more transparent . . . careful in its stewardship and honest in its dealings." But doesn't every party claim this? Why not pledge to drastically shrink government instead?

It also promises "a better America." Who would promise a "worse" America?

It offers "[a plan whereby] the best ideas trump the most entrenched interests." Sure. Then why not put entrenched interests on notice by forswearing earmarks? (This is the glaring omission I spotted.)

It aims to "eliminate wasteful and duplicative programs . . . while still fulfilling all necessary obligations." Everyone promises to trim waste, but it never happens; instead, too-big bureaucracies proliferate and expand. More fundamentally, where do Republicans differ from Democrats on the "necessary obligations" of government?

It seeks to "require congressional approval of any new federal regulation that may add to our deficit and make it harder to create jobs." Why not insert a period after "regulation" and leave out the qualifiers that follow? Currently, rules proposed by federal bureaucracies take effect automatically unless Congress -- which is too busy to even read its own bills, much less reams of bureaucratic regulations -- explicitly rejects them, and so they are almost never challenged. Change it so that no rule proposed by unelected bureaucrats takes effect unless Congress explicitly votes to adopt it.

The pledge suffers from occasional ambiguity. Its proposal to replace Obamacare with reforms like liability reform and permitting interstate sales of health insurance makes sense. But then the Republicans sound just like Democrats when they promise to "ensure [do they mean "mandate?"] that those with pre-existing conditions gain access to the coverage they need."

Remember the promise to eliminate "duplicative" programs? Then why promise "a net hiring freeze" for federal employees instead of reducing the federal payroll after Obama's rapid expansion of it?

The pledge calls for "preventing the expansion of unfunded liabilities." Fine, but simply freezing the amount of those unpayable promises isn't enough. If we don't eliminate many trillions of those liabilities, our financial doom is sealed.

Another intriguing proposal is to require every bill to include a citation of constitutional authority. Do Republicans regard such authority as the letter of the Constitution itself or merely judicial opinions written about the Constitution?

Overall, the pledge is not very bold. The authors' numbers suggest very modest plans for downsizing Uncle Sam. At one point, they write about rolling spending back to "pre-stimulus, pre-bailout levels." That sounds like at least a trillion-dollar cut to me, but then they say that such a step would save $100 billion. Huh?

The pledge has its redeeming features. Invoking the Declaration of Independence at the outset is inspiring. Some of the facts cited hit home -- e.g., how much higher taxes will be next year for middle class families and single moms if the Bush tax cuts expire; the existence of 2,050 federal programs providing economic assistance to Americans.

At best, though, the "Pledge to America" is a mixed bag. Clearly, its Republican authors sought to chart a middle path between Democrats and the Tea Party movement. In that, they succeeded.

This is probably a sound political strategy for the GOP. With voters weary of heavy-handed, hatch-it-behind-closed-doors-in-the-middle-of-the-night-then-ram-it-into-law-before-anyone-reads-it legislation (not to mention counterproductive "stimulus" plans, in-your-face cronyism, and soaring national debt), 2010 is the Republicans' election to lose. All they have to do is run to the right of Obama and they will make large gains in Congress.

Would the "Pledge to America," even if adopted in its entirety, be enough to turn us off our current road to national bankruptcy? No. But perhaps it will prove to be the first of many steps needed to restore economically sound governance to our country.

Understanding "Austerity"

A couple of years ago, the terms "too big to fail" and "bailout" were the trendy buzzwords. Currently, the "in" word seems to be "austerity." On both sides of the Atlantic, public officials and media pundits are debating the need for "fiscal austerity programs," i.e., shrinking government deficits by increasing tax revenues and/or reducing expenditures.

The term "austerity" is problematic. It connotes sacrifice and deprivation. While "austerity" programs include cutbacks in some persons' lifestyles, it seems odd to say that learning to live within one's means is a sacrifice. What some call "austerity" is simply the recognition of reality: A society cannot chronically consume more than it produces.

Favoring "austerity" are those worried that today's swollen budget deficits and national debts, if not corrected, will trigger an economic catastrophe through a sovereign debt crisis (i.e., the inability of governments to find buyers for their bonds). Opposing it are those who profess concern about the economic hardship that would be endured by innocent victims, and/or those who believe that the right economic policy is for governments to increase spending and budget deficits even more than they already have.

Traditionally, "austerity programs" have been International Monetary Fund (IMF) bailouts of heavily indebted, virtually bankrupt Third World governments. For governments to obtain a loan, the IMF has required them to get their fiscal affairs in order by reducing their budget deficits.

Today, by contrast, we find that some of the wealthiest countries in the world require "austerity programs." The dangerous indebtedness of the PIIGS (Portugal, Ireland, Italy, Greece, Spain) is well known. This has deflected our attention from the salient reality that the United States has comparable degrees of debt and deficits to those European countries. We, too, are in danger of either a sovereign-debt and currency crisis.

We should be ashamed and alarmed that we are even talking about "austerity programs" for the United States of America. The very fact that we are doing so means that we have lapsed into a Third-World-style quagmire of fiscal incompetence and over-indebtedness. Like a banana republic, we have allowed a self-serving political class to spend tax dollars and borrowed funds to "buy" popularity and take us to the brink of national bankruptcy.

Uncle Sam has behaved like a guy earning $40,000 per year who -- with the help of borrowing -- has been spending $60,000 per year. Obviously, that can't continue indefinitely. In fact, such a person can't repair his balance sheet even if he reduces his annual consumption to $40,000; he has to consume less than $40,000 to be able to serve his debt obligations. So it is with Uncle Sam.

In recent years, our government has gone on a spending binge. As a result, today's economy is sluggish and severely hung over. Yet Keynesian economists like Paul Krugman tell us that we haven't binged enough. We've been belting down doubles, but Krugman says that the cure for our fiscal hangover is to go back to the bar and start chugging triples. No thank you.

Other pundits on the left are calling for tax increases instead of spending cuts. Their primary goal is the redistribution of wealth, and so they object to the alleged unfairness of spending cuts. This raises the issue of whether existing government payments to individuals ever were fair. There isn't space to debate this now, but the overriding problem is this: If federal spending isn't cut significantly, we will end up with a financial crisis and economic crack-up that will cause more economic pain for more people, including those that the redistributionists claim to want to help. What could possibly be fair about that?

It is clear what we must do: slash government spending. Tax rates should not be raised while we are in this weakened economic condition.

What some call "austerity" is simply a return to fiscal sanity and economic reality. We cannot continue to spend more than we produce. The adjustments will be painful, but the longer we wait to bite the bullet, the more painful those necessary adjustments will be.

One more point: The blame for the pain caused by "austerity" belongs, not to those who make the politically difficult decisions to cut spending, but, to those in the past who made politically facile decisions to spend beyond our means. They are the ones who got us into this mess.

Exchange-Rate Mythology and Weak-Dollar Nonsense

If you read the financial press or listen to what politicians say, you have probably heard many times how important it is for the Chinese renminbi (yuan) to strengthen against the dollar. Indeed, it sometimes sounds as though a weaker dollar is the key to a prosperous economic future for Americans. Nonsense!

Let's look at this issue from an individual standpoint. Are you better off with a stronger or weaker dollar? In other words, do you hope to be able to buy a lot or a little with a dollar? Silly question, isn't it?

I first learned the advantage of a strong dollar when I lived in Colombia, South America, as a 19-year-old. When I first got there, I could exchange one U.S. dollar for 16 Colombian pesos. Several months later, I could get close to 20 pesos per dollar. At that exchange rate, I could buy a steak dinner and a beer in a nice restaurant on Carrera Septima, the main street of the capital city, Bogota, for the equivalent of one dollar. For an impecunious college kid, that was a real treat!

A strong currency is a consumer's best friend. Why, then, do politicians fixate on exchange rates and lobby for a weaker dollar?

There are two reasons for this anti-consumer attitude: an obsession with balance of trade data and the problem of debt. Let's examine the trade question first.

We hear the constant refrain that we have such a large trade deficit with China because China manipulates the dollar-yuan exchange rate, keeping the yuan artificially cheap. True, the Chinese do manipulate the exchange rate. But if the yuan were to strengthen significantly over the next several years -- say, even if it doubled vis-a-vis the dollar (although there is no guarantee that it would in a free, unmanipulated exchange-rate market) -- would China's trade surplus with the United States shrink? Probably not.

Nearly 40 years ago, the exchange rate for the Japanese yen was over 300 to a single dollar. Japan was running a large trade surplus with the United States. Some experts believed that the way to shrink the Japanese surplus (i.e., the U.S. trade deficit) was for the yen to appreciate.

Fast forward to the 1990s. The exchange rate was about 90 yen to the dollar. In other words, the yen bought more than three times as many dollars as before. And guess what? The U.S. trade deficit with Japan hardly budged.

In fact, Japan derived some considerable benefits from the stronger yen. For example, since the global market for oil is priced in dollars, the real cost of higher oil prices to the Japanese has been only about 1/3 of ours. Advantage, Japan.

Just as other factors outweighed the impact of the currency exchange rate in the trade balance between Japan and the United States, this has also been the case in recent years with China. Between July 2005 and July 2008, the yuan strengthened 21 percent against the dollar, and yet the annual trade deficit rose from $202 billion to $268 billion.

American imports from China increased by 39 percent during that period in spite of the stronger yuan. In theory, a stronger yuan is supposed to reduce American demand for Chinese goods by pushing their prices higher. In practice, though, most Chinese goods are labor-intensive, meaning that labor is the major component in their price -- yet even if Chinese wage rates rose by several multiples, the goods they produce would still be competitively priced here.

This isn't to say that no Americans benefit from a weaker dollar. The weak buck increases the sales of some exporters. I'm sure they are delighted to contribute to the reelection campaigns of politicians who are weak-dollar proponents, even though most Americans are net losers due to reduced purchasing power.

Besides exporters, the other special interest group that benefits from a weaker dollar is official Washington itself. Throughout history, debtors have favored monetary debasement and depreciation. It is easier to repay debts that way. Since Uncle Sam is the largest debtor in the history of the world, Washington insiders have the strongest incentive to weaken the dollar.

Even though a weaker dollar defrauds our creditors, foreign creditors prefer getting repaid in cheaper dollars to an outright default and suspension of payments, so they will hold their noses and settle for what they get. Through this ethically dubious device, our profligate, dissolute, bankrupt government bleeds the wealth of productive citizens and manages to prolong its misrule for a while longer. We the people are left to hold our noses -- just like the Chinese and our other creditors. *

"Liberty must at all hazards be supported. We have a right to it, derived from our Maker." --John Adams

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Values.

Three Neglected Economic Lessons from American History

In most, if not all, states, pupils must pass a course in American history to receive a high-school diploma. Unfortunately, when it comes to our country's economic history, most students are poorly taught, perhaps wrongly taught. Mythology and error prevail where facts and truth should reign.

Some economists and historians have made excellent contributions to correcting the historical record. Dominick Armentano's Antitrust and Monopoly sets the record straight on the "monopoly" bogeyman. Burt Folsom's The Myth of the Robber Barons and New Deal or Raw Deal? demolish numerous fairy tales. Much work, though, remains to be done.

Here are three of the most vitally important lessons from American economic history that are widely neglected today: 1) the history of our money, 2) the Constitution's built-in bulwark against runaway government spending, and 3) government's counterproductive responses to economic recessions.

1) Sound Money.

Few contemporary students are familiar with the phrase "Not worth a continental." The continental dollar was the paper currency issued by the Continental Congress from 1776 to 1780 to finance the War of Independence.

The continental currency met the fate of all paper currencies not backed by gold or silver. The Congress, desperate for more purchasing power, printed vast sums of continentals. The resulting hyperinflation rendered the bills nearly worthless; hence "not worth a continental."

This fiasco wrought devastation. Soldiers, farmers, merchants, and even financiers, were wiped out, impoverished. Because of this ruinous experience, the Founders drafted a Constitution designed to avoid the pitfalls of paper money. One of Congress' enumerated responsibilities is to "coin money" (in contrast to "print currency"). The Constitution also stipulates that states settle all their financial obligations in gold or silver.

Having suffered the ravages of paper money, the Founders sought to spare us from similar grief, but alas, subsequent generations of leaders have steered us away from constitutional money. Instead, we use unbacked Federal Reserve Notes, which are destined to suffer the same dismal fate as the continental currency and all fiat money.

2) Spending Restraint.

There is an instructive incident recorded about the life of the famous frontiersman, Davy Crockett. When running for re-election to Congress from his district in Tennessee, Crockett encountered one Horatio Bunce, a farmer who informed Crockett that he would not vote for him because he disregarded the Constitution. This led to a fruitful dialogue during which Bunce tutored Crockett on the Constitution, explaining that Congress had no authority to give economic charity, especially with other people's money. Crockett henceforth was a born-again constitutionalist. (This account is available at www.fee.org. Search: "Not Yours to Give.")

Another historical vignette of similar import was President Grover Cleveland's frequent use of the presidential veto. Cleveland might have been the last true constitutionalist in the White House, repeatedly refusing to approve of congressional attempts to expand government spending beyond its constitutional limits.

"Big Government" cheerleaders today dismissively tell us that 18th and 19th century practices are passe and that the role of government must change. Yes, of course. George Washington and the other Founders understood that change was inevitable, and they provided for change.

In his Farewell Address, Washington advised us to alter the Constitution "by an amendment in the way which the Constitution designates," and later added, "But let there be no change by usurpation" (either by tortured constitutional reinterpretations or by simply ignoring the Constitution when it became inconvenient). The Founders knew that a government that would slip the chains of the Constitution would begin to redistribute wealth and ultimately bankrupt the country. Now, having ignored Washington's wise counsel, we face the prospect of bankruptcy that he and the other Founders sought to spare us.

3) Government's Ineffectual Response to Recessions.

Americans deserve a historically accurate account of the ineffectiveness of government intervention during economic downturns. The current teaching about recessions, and particularly the Great Depression, is riddled with errors.

For example, Herbert Hoover was not a laissez-faire president; government "stimulus" spending does not cure recessions; the Federal Reserve can not restore prosperity by lowering interest rates and/or inflating the money supply.

In fact, Hoover scorned free markets. He engaged in so much government intervention that Roosevelt accused him of reckless over-spending and socialistic tendencies.

The most effective anti-recession policy of the 20th century was President Warren Harding's anti-stimulus policy of slashing federal spending nearly in half.

More money is not the cure for depressions, as can be seen by contrasting the depression of 1920-21 with the early 1930s. The money supply contracted to a comparable degree both times, but in the 1920s prices and wages were more flexible (that is, free of government intervention), so that they could adjust and bring supply and demand into balance. In short, markets work if government stays out of the way.

On economic issues, the Founders had it right. We can spare ourselves a lot of pain if we heed the lessons of our own national history.

More Lessons from History: How Obamanomics May Play Out

The grand lesson of the 20th century is that Big Government retards economic progress.

The evidence of this lesson goes beyond the socialist countries and their dramatic economic failures. Several decades ago, as a young economist, I encountered repeated studies that showed a high correlation between two macroeconomic phenomena: The larger the government's share of a country's GDP, the slower the rate of economic growth tended to be. Conversely, economic growth flourished where government was relatively small.

Many Americans seemed, and still seem, impervious to this lesson despite our own history. The same correlation was evident in the 1920s, when President Harding cut the size of federal spending in half, leading to a decade of prosperity, and in the 1930s, when the economy tanked under Presidents Hoover and Roosevelt and their huge expansions of government.

Despite this clear historical evidence, President Obama is committed to growing government. He has increased federal spending to over 27 percent of GDP, up from 20.5 percent when George W. Bush left office.

Obama indisputably favors the public sector over the private. When Michelle Obama gave her famous speech a couple of years ago, urging young people to avoid working for profit-seeking (i.e., private) companies, she was doing more than simply expressing an opinion: She articulated her husband's agenda.

It started on day one, when Obama staffed his cabinet and other top positions in his administration with a record-low percentage of people with private-sector experience -- fewer than 10 percent (the historical average is near 40 percent).

Since then, he has consistently worked to bring more and more people onto the government payroll. He increased the number of paid positions in Americorps by 224 percent; Teach for America by 94 percent; Peace Corps, 24 percent. The health-insurance bill created dozens of new agencies. The just-passed financial reform bill creates a new bureaucracy with an initial budget of nearly a billion dollars per year.

One source recently reported that Team Obama is revoking contracts with private firms and transferring the work to government employees. The government even hires former employees of the private contractors, giving them significant pay-and-benefit hikes. That may be good for them, but at a time of record budget deficits, finding ways to increase the costs of government doesn't make economic sense.

In his compact 1944 classic, Bureaucracy, economist Ludwig von Mises explained why bureaucracies are inherently uneconomical. Whether under socialist or democratic governments, bureaucracies are not disciplined by the profit-loss calculus. Insulated from the competitive marketplace, they become bloated and inefficient.

When private businesses serve customers poorly, their revenues decline. If their losses are severe enough, they fold. Exactly the opposite happens with bureaucracies. If they fail to get the job done, Congress typically appropriates more funds for them. We saw this with FEMA after Hurricane Katrina, and the same dynamic will play out with Obamacare, too, unless it is repealed. It's the nature of the beast.

No society can afford to bear the costs of many bureaucracies. As much as Obama prefers government workers, most people need to be in the private sector generating the wealth that government appropriates for bureaucratic functions.

This implies that Obama has veered down a dead-end detour. He wants government agencies to be in charge of this, that, and the other thing, but how can we pay for it all? A bureau-centric policy agenda inevitably impedes economic growth.

Obamanomics, in short, ignores two economic truths: Expanding government's share of GDP cripples economic growth. So does a proliferation of new government bureaucracies. From this we may predict that Obama's policies will saddle us with continuing economic sluggishness.

Given that Americans tend to replace presidents when the economy is struggling, can we predict that Obama will be a one-term president? I don't think so. The presidential campaign of 2012 could be a repeat of 1936 (FDR's first run for re-election). The historical record shows that many voters in 1936 were disappointed about the terrible shape of the overall economy after four years of New Deal programs. Many who were unhappy about the economy voted for Roosevelt anyhow. Why? Because they were benefiting personally from his massive spending programs.

Obama's stimulus plan has been and will continue to be spent in ways that benefit targeted groups. His recent request for another $50 billion to give to teachers, firefighters, and police (traditionally, these have been locally funded public employees, and therefore independent of Washington) is just one example of Obama's politically strategic spending.

Obama has ignored the economic lessons of history, but he has taken to heart the political lesson of FDR's formula for electoral success. It would be prudent and timely for us citizens to grasp both the economic and political lessons of our history.

Geithner Versus the Bush Tax Cuts

I'm now convinced that the Obama administration is placing its political agenda above policies that would contribute to the economic recovery that millions of Americans so desperately need. That agenda includes bringing more economic activity under government control, making more people dependent on government, and, generally, redistributing wealth.

I have come to this conclusion after listening to Team Obama's spokesman, Treasury Secretary Tim Geithner, assert that allowing the Bush tax cuts to expire on December 31, as currently scheduled, is good policy. In truth, raising tax rates when the economy is faltering is counterproductive. It will weaken the economy further. Given the sorry state of the economy -- with the jobs markets, credit markets, construction industry, and small-business climate all in states of decline or stagnation -- adopting a policy that will exacerbate economic stagnation and increase hardship for Americans is worse than ill-advised.

George W. Bush persuaded Congress to lower taxes on income, inheritance, capital gains, and dividends to resuscitate the moribund post-9/11 economy. Those tax cuts helped foster a pickup in economic activity. Today's economy is moribund again, yet Geithner wants all those taxes to go up at year-end.

There is no justification -- theoretical or historical -- for such a policy. And it isn't just free-market economists who believe that raising taxes during a time of economic weakness is counterproductive. Lord Keynes -- the famous economist whose 1930s-era theories were exhumed by Team Obama in support of "stimulus" spending programs -- maintained that economic sluggishness calls for tax cuts, not tax hikes. (Have you noticed how Keynes is invoked when his theories support what Team Obama wants to do, but they leave him in the closet when his theories conflict with their objectives?)

The historical evidence is also weighted against Geithner. As I have written before, the depression of 1920-21 was followed by cuts in both tax rates and government spending, and the economy recovered; by contrast, in the 1930s, both Hoover (Republican) and Roosevelt (Democrat) raised taxes and spending -- Team Obama's identical policy today -- and the economic misery was prolonged.

Geithner's arguments for letting the Bush tax cuts expire were, frankly, devious. He asserted that this step was needed to convince bondholders around the world that the United States is serious about reducing deficits. Apart from the inconvenient fact that raising tax rates often lowers tax revenues (e.g., the 1930s under Hoover and Roosevelt), Team Obama has engaged in a classic bait-and-switch maneuver.

It wasn't that many months ago when the Obama administration, having jacked up federal spending by almost a trillion dollars in emergency stimulus spending, was talking about scaling back about half of that spending. That was a clever way for Team Obama to convince the gullible that the president and his administration are fiscally responsible, when their actual goal was to lock in a permanent 12-figure increase in federal spending.

Are you hearing any noise from Geithner about reducing Uncle Sam's out-of-control spending as a means of persuading bond investors that our government is beginning to return to fiscal sobriety? Nope. All of the focus is now on high spending and high taxing -- i.e., depression-inducing economic policy in its purest form.

Geithner played the class-warfare card by asserting that the tax cuts would only hurt the top two or three percent of taxpayers. That may be technically true (though even that is in doubt until we see if the other 97 percent of Americans are indeed protected by extending the Bush tax cuts for them), but it is economically untrue. You can explicitly and directly increase tax rates only on the top earners, but the indirect effects of such tax hikes will be profound. The reduction in production and investment caused by tax increases will end up harming many Americans in lower income brackets.

Perversely, the tax hike that Obama and Geithner want would hurt Americans of modest or low incomes more than the rich. In the name of "social justice" and making the rich pay "their fair share," pro-tax-hike zealots are willing to sacrifice the economic well-being of Joe Lunchbucket. That raises interesting questions: Are the "soak the rich" clique economically blind and ignorant, not knowing what they are doing? Or do they know that their Big Government agenda will cause unnecessary economic pain, yet they are willing to pursue it anyway? Either way, these are some very troubling questions.

Rethinking the Corporate Income Tax

It is hard to find anything positive to say about the corporate income (i.e., profits) tax. Economists across the ideological spectrum agree that the corporate profits tax is woefully inefficient:

1) It warps corporate decision-making, inducing expenditures made only to reduce a company's tax liability.

2) The compliance costs are astronomical, often exceeding 60 cents for every dollar of revenue that the government raises from taxing corporate profits. How would you like to spend $6,000 per year calculating that you owe Uncle Sam $10,000?

3) It fosters over-reliance on debt. Corporations often need to borrow money to replace funds that government taxed. In fact, the tax code encourages debt, making corporate debt tax deductible.

The corporate profits tax is also ethically problematical.

Every year we read about some corporations that earned profits paying zero taxes, while other firms are ensnared in the tax net. This is patently unfair.

The unfairness is compounded by the periodic tax breaks that Congress writes. The timing of such tax breaks is arbitrary. Why should some firms receive an accelerated depreciation allowance for helpful upgrades paid for this year when their competitors upgraded last year and received no comparable break?

Another thorny ethical problem involves the tax-free status of non-profit organizations. Some of them engage in political lobbying where they enjoy a cost advantage vis-a-vis for-profit organizations that lobby on the same issue (though perhaps on the other side). Other non-profits compete directly with for-profits for personnel, supplies, etc. The newest ethical abuse is that formerly for-profit companies can convert to non-profit status as a loophole to make themselves eligible for additional federal earmarks.

Despite the glaring economic and ethical shortcomings of the corporate profits tax, such taxation enjoys widespread popular support. A large percentage of citizens like the idea of taxing "rich" corporations. However, the economic reality is different from the common perception.

It's a cliche, but true: corporations don't pay taxes, people do. Corporations are simply fictitious legal persons serving as unpaid tax collectors for governments. The actual economic burden of taxation is borne by real people, i.e., consumers, who pay higher prices; workers, who are left with lower compensation packages and diminished employment opportunities; and investors, particularly the millions of middle-class Americans who own stocks in their retirement and investment accounts, because the corporate income tax makes their investments worth less.

In addition to being economically irrational, ethically dubious, and a cynical disguise for taxing real people, most of whom are not rich, the corporate profits tax stunts economic growth. In a recent study, the Organization for Economic Cooperation and Development affirmed, "Corporate taxes are found to be most harmful for growth, followed by personal income taxes and then consumption taxes."

Currently, the United States has the second-highest corporate income tax rate in the developed world, 35 percent. Should we trim this rate? No. We should scrap the tax entirely.

The biggest problem with eliminating the corporate profits tax, which raised $138.2 billion in fiscal year 2009, is that it would aggravate our budget deficit. To offset this sudden loss of revenue, Congress should terminate all federal subsidies to businesses. Although precise definitions of corporate welfare and exact dollar figures for such government favors are hard to tabulate, they surely exceed $138 billion per year. Let's do away with the myriad privileges for special business interests and make them earn their income by serving consumers instead of milking the taxpayers.

American workers would benefit greatly from ditching the corporate profits tax. Business flooded into Ireland when it undercut the other EU countries by lowering its corporate income tax rate to 12.5 percent. A zero percent rate on corporate income here would be even more enticing, making the United States the favored destination of multinational corporations. Job opportunities would mushroom, and the resulting expansion of the tax base would lower the federal deficit.

The benefits of jettisoning the whole corporate income tax/corporate welfare mess would be many: More jobs, more production, more wealth, more fairness, and lower government deficits. Who could object?

Unfortunately, many people. Start with the strange bedfellows of corporate lobbyists and anti-capitalist ideologues. Then add the politicians who traffic in political favors and moral posturing. Finally, add the millions of American citizens who fail to perceive that, instead of soaking the rich, the corporate profits tax is a scorched-earth policy inflicting widespread economic damage on middle America.

Abolishing the corporate profits tax isn't politically feasible today, but we can hope for a day when economic reason prevails and we get this albatross off our backs.

Global Warming -- The Big Picture: A Review of Brian Sussman's Climategate

"Climategate: A Veteran Meteorologist Exposes the Global Warming Scam" by Brian Sussman, WND Books (April 22, 2010), 240 pp., List Price: $25.95 B.

Climategate is thorough, knowledgeable, timely, and very well written. I have been reading about global warming for 20 years, yet this book included important information and details that were new to me.

The title of the book requires clarification. Climategate is not a book-length dissection of the "climategate" scandal that erupted last November when a huge bunch of incriminating e-mails between key global warming advocates came to light. Instead, it gives a big-picture treatment of the science, politics, economics, ideological underpinnings, and personal agendas behind the global warming issue.

The author of Climategate, Brian Sussman, is a trained meteorologist who was a TV weatherman in California for many years. He currently hosts radio station KFSO's top-rated morning talk show in the San Francisco Bay area.

For most of his book, Sussman writes in a breezy, folksy, upbeat style that makes learning important information enjoyable. The tone shifts to earnest eloquence toward the end, when he warns us about the great dangers to liberty and prosperity posed by the ruthlessly ambitious elitists behind the global warming scam.

The most prominent of these elitists is, of course, Al Gore, who -- according to Sussman -- is well on his way to becoming the world's first anti-carbon billionaire. Gore's elitism is encapsulated in his statement, "There are times when a small group has to make difficult decisions that will affect the future of everybody." Gore is all too happy to accept his self-appointed responsibility to restructure our lives.

Sussman provides plenty of evidence that Gore and other global warming activists bend, if not mutilate, truth and science in pursuit of money, power, and prestige. For example, in Gore's Oscar-winning horror film, An Inconvenient Truth, the graph showing an apparent correlation between global temperature and CO2 in the atmosphere is shown briefly, so that viewers won't have time to notice that increases in CO2 occurred after increases in temperature, thereby demolishing the assertion that CO2 causes global warming.

Sussman also recounts how an English court found that Gore's "film contains nine scientific errors" in the context of "alarmist" and "exaggerated" content. That court ruled that An Inconvenient Truth amounted to "political brainwashing" for partisan, nonscientific objectives, and further ordered that the movie could not be shown to British schoolchildren without being accompanied by a 56-page instruction guide which points out where Gore's claims "do not accord with mainstream scientific opinion."

Climategate is a wide-ranging expose of characters and special-interest groups that have exploited the global warming scare for self-serving purposes. For example, Sussman reports that the grandstanding dictator of the Maldives has demanded billions of dollars from the developed world on the grounds that human-caused global warming threatens to cause his low-lying chain of islands to disappear. In fact, the sea level there is falling.

One group exposed by Sussman is the Society of Environmental Journalists. SEJ provides lists for journalists preparing stories on global warming. One list recommends trusted advocates of global warming; the other blackballs scientists who are global warming skeptics.

Sussman also explains some of the measuring errors that have clouded the global warming issue. For example, adding new weather stations near urban heat islands, and arbitrarily "expanding" the Arctic to include an additional four million square miles of territory farther south from the North Pole, both produce an illusory increase in average temperatures.

Climategate includes the most detailed explanation I have yet seen of how untenable the anthropogenic CO2-as-culprit theory is. Sussman gathers the scientific information about the relative heat-trapping capacity of different atmospheric gasses, shows CO2's percentage of the whole (both with and without the major greenhouse gas, water vapor) then factors in mankind's share of total global CO2 emissions. Bottom line? Humans are responsible for about one-ninth of one percent of the greenhouse effect (and, as Sussman briefly explains, the greenhouse effect is only one of several factors that influence earth's temperature).

Sussman's chapter summarizing the pros and cons of the various sources of energy provides an excellent primer on the subject. His information about how corporate and political insiders stand to make billions in controlling the government-rigged energy market under a cap-and-trade scheme while regimenting Americans under a yoke of Big Brother-like, high-tech monitoring devices is chilling.

It is difficult to overstate the importance of this book. Climategate provides a comprehensive debunking of global warming mythology. It sounds a timely warning about how grim our future will be if powerful elitists and special-interest groups succeed in imposing their agenda on us. If you only understand global warming in bits and pieces, this is the book that puts it all together for you in the proper perspective and context. *

"Man, once surrendering his reason, has no remaining guard against absurdities the most monstrous, and like a ship without rudder, is the sport of every wind. With such persons, gullibility, which they call faith, takes the helm from the hand of reason and the mind becomes a wreck." --Thomas Jefferson

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Values.

Reflections on the Deepwater Horizon Disaster

The explosion that sank British Petroleum's Deepwater Horizon oil-drilling vessel/platform in the Gulf of Mexico in April was an unmitigated disaster. The accident killed 11 workers and has caused massive environmental damage, the full extent of which may not become known for months or years.

Here are some thoughts on this horrible event:

1) The deaths of 11 workers drilling for oil -- less than three weeks after the deaths of 29 West Virginia coal miners -- serve as a vivid reminder of the dangers faced by those who toil to supply the raw energy upon which our society depends. Most of us take for granted these vital contributors to our economic life. As one who never knew his father due to an oil-field accident long ago, I tend to view these folks as unrecognized heroes. Thank you to all who are doing this essential, dangerous work; may God comfort all who have lost loved ones in this endeavor.

2) The technologies that have been developed to extract fossil fuels from the earth are engineering marvels. Some drilling vessels in the Gulf are nearly the size of World War II-era aircraft carriers. There have been over 14,000 wells drilled in at least 700 feet of water with a superb overall safety record, including no oil spills in the Gulf despite the merciless battering inflicted by Hurricane Katrina. (Whether drilling these wells is safe enough to be permitted is a separate question that will be revisited below.) Drilling for oil in oceans five miles deep, into deposits where the temperature can reach 900 degrees and the pressure 20,000 pounds per square inch, is a colossal engineering achievement.

3) We must never forget the power of nature. Humans have devised myriad ways of fending off nature's destructive power, but there will always be times when nature will simply overpower and overwhelm our best efforts. The explosive force that erupted through the ocean floor and destroyed Deepwater Horizon is one emphatic reminder of that awesome might.

4) Was the disaster avoidable? This is the key question. It is very tempting to jump to conclusions, but first we need more fact-finding.

There have been reports that workers saw considerable physical evidence that key parts of the built-in safety mechanisms on Deepwater Horizon had disintegrated. A preliminary congressional memo containing admissions of "mistakes" by BP reinforces the impression that the disaster might have resulted from a faulty decision-making process. If so, then this horrible tragedy will enter business-school literature as perhaps the definitive case of a dysfunctional managerial chain-of-command.

One of the oldest lessons in the book is to avoid being penny-wise and pound-foolish. How tragic and foolish it would be if it turns out that a decision was made to ignore a safety shutdown that would have cost millions, thereby resulting in an accident that surely will cost BP and related corporations billions.

There has been an unconfirmed report that government regulators gave Deepwater Horizon a pass. If so, why?

5) Finally, should we stop drilling for hydrocarbons in such deep waters? The central problem we deal with in environmental economics is whether the costs of an activity outweigh the benefits or vice versa. It isn't always possible to accurately tabulate costs and benefits, but without a doubt, the environmental and human costs of the Deepwater Horizon disaster are gargantuan.

I certainly can't say whether deep-sea oil development should continue. With 20 percent of the oil consumed in the United States coming from the Gulf of Mexico, a complete cessation of drilling there appears to be out of the question. Certainly, though, there will be a re-examination of where drilling will be allowed.

Many people are asking why there is drilling in such deep waters. This is a complex issue with multiple factors to consider, but ironically, environmentalists may be partly responsible.

For decades, environmentalists have striven to thwart the development of domestic supplies of energy. They have blocked oil exploration and development in vast tracts of Alaska, the Rocky Mountain states, and the outer continental shelf under relatively shallow waters along our coasts. Furthermore, environmentalists succeeded in preventing increased usage of another energy source that is economically competitive and ecologically and operationally the safest energy source readily and abundantly available to us -- namely, nuclear energy.

If these sources of energy had not been choked off in the name of environmental protection, would energy companies be currently drilling as many higher-cost wells in deep water? Is it not possible that zealous environmentalists have unwittingly driven energy companies to drill for oil in places where perhaps they have no business drilling? Should environmentalists rethink their positions and make their peace with sources of energy that pose less of a threat to the environment than deep-water drilling?

These are important questions for environmentalists, policymakers, and indeed, all of us, to consider.

Christian Charity: Social Justice and the Good Samaritan

Charity -- a loving spirit concretely expressed in unselfish good deeds to one's fellow man -- is a primary Christian duty. Nobody who has read the New Testament can come to any other conclusion.

In his parable of the Good Samaritan (Luke 10:30-37), Jesus explains what it means to love one's neighbor as oneself. When the Samaritan happened to encounter a man who had been badly hurt by robbers, he compassionately ministered to the man's needs. This was in stark contrast to two other men who already had seen the wounded man and left without helping him. The vivid contrast was made even more stark by the fact that the merciful man was a Samaritan, whom Jesus' own people, the Jews, despised as religious inferiors, while the heartless men who ignored the victim's plight -- a priest and a Levite -- came from the ranks of the religious elite.

The Good Samaritan gave what he could to help the wounded man. He first took care of him himself, and then, when his own pre-existing commitments necessitated his departure, he paid an innkeeper to nurse the man back to health.

In this famous parable, Jesus illustrated, with exquisite (and typical) brevity and simplicity, the two forms of Christian charity: first, assistance provided personally and directly to another; second, rendering assistance indirectly by donating one's own property to those who have the time and skills to tend to those in need, in lieu of our own hands-on assistance.

As a thought experiment, let's imagine the story of the Good Samaritan taking a different twist. Let's suppose that the Samaritan, upon spotting the badly wounded man, also sees a rich man walking by. Let us then suppose that the Samaritan is a big, powerful man who intimidates the rich man into handing over enough money to pay for the wounded man's care. The man in need would still receive the help that he so desperately needs, but would the Samaritan still touch our heart, and would he have acted selflessly? Would we remember him as a paragon of Christian virtue and charity?

Jesus had not demanded that the Samaritan take money from strangers on the street by threat of force. That wouldn't feel right, would it?

The obvious difference, of course, is that in Jesus' parable, the Samaritan acts voluntarily -- out of the goodness of his own heart -- whereas in my hypothetical, counterfeit version, the Samaritan engages in an ersatz pseudo-charity by forcing someone else to pay for the good deed that the Samaritan wants to be performed. Is it true charity to be generous with other people's money?

This is the murky moral territory onto which many Christians stray in the name of "social justice" or the social gospel. The desire to help those in need is laudable, but the means often employed by advocates of "social justice" are not.

Many Christians commit a fundamental error when they call for government to redistribute wealth to the poor, the sick, the needy. Government necessarily introduces the additional factor of compulsion into the equation, as government employs organized force.

If we wouldn't justify an individual collecting funds for the poor by threatening passersby, then how do we justify government using the threat of fines or imprisonment to extract property from some to give it to others? In the words of Thomas Jefferson:

It is strangely absurd [to suppose] that a million human beings, collected together, are not under the same moral laws that bind (or liberate) each of them separately.

This isn't to say that no collective action should be taken to minister to the poor. Indeed, many churches and various private-sector charities are doing praiseworthy work for those in need, and they merit our financial support. The common factor, though, in these nongovernmental organizations is that participation is voluntary. Nobody compels you to belong to a certain church or contribute to a specific charitable organization. It is your prerogative and choice.

By all means, be charitable. But don't mix charity with compulsion. Jesus never did.

Tragedy in Amish Country: Living Levi's Example

I first met Levi almost 20 years ago. He was about 12. We had just purchased our land from his parents, Jake and Nancy. Being old-order Amish, Jake and Nancy needed a ride to the attorney's office, so we drove them and new-born Chris, their youngest, to finalize the transaction. Thus began a very special friendship between two families.

Every Christmas Eve, our little family of three and Jake and Nancy's larger family (five children at the beginning, but more recently including four daughters-in-law, one son-in-law, and 13 grandchildren) gather for Christmas fellowship.

Levi is the second of Jake and Nancy's five children. Friendly, kind, very bright, soft-spoken, strong and gentle, he has always been a gem. I can still picture, during that first year of friendship, Levi sitting next to my daughter on a couch in Jake and Nancy's house. Karin, who was about 15, was holding a book or magazine. Levi leaned over to get a better look, resting his head on Karin's shoulder. It was a completely unselfconscious moment for both of them, just two pure and innocent youngsters sharing the joy of a story. Nancy remarked, "I know we don't have photographs, but I'd love to have a photo of that."

Levi was an avid reader. I shared dozens of the books that I had read as a young teenager with him and his siblings.

About ten years ago, we attended the wedding dinner celebrating Levi's marriage to Katie. We were two of five "English" (that's the word the Amish use for all of us who aren't Amish) packed in among 200 or 300 Amish.

Katie was a perfect match for Levi, a veritable angel of sweetness and quiet steadiness. A couple of years later, they welcomed Sally into the world. Of all of Jake and Nancy's 13 grandchildren, it was Sally who bonded most closely with our family. The highlight of her year was to draw pictures to give us at our Christmas Eve gathering and to help my Eileen in the kitchen. Like her Aunt Lizzie before her, she was enthralled by the "miracle" of the "baked Alaska" going into the hot oven and the ice cream not melting.

Five years later (about three years ago) little Anna joined the family. The four of them lived their version of the American dream, keeping to the simple Amish life, placing worship of God and love of their families above all else. It was idyllic.

Two weeks ago, Jake and Nancy were over for dessert. Eileen told Nancy that she would be going over to visit her buddy, Sally, on the following Monday. It wasn't to be.

On that Saturday, May 8, the unthinkable happened. Levi went fishing with his brother Gideon, one of those simple enjoyments that always remain special to these unspoiled people. It was a miserable day, cold, windy, and rainy. At home, Katie went to light a fire. Somehow the can of kerosene ignited. Katie, Sally, and Anna all quickly succumbed.

The next day was visitation. It was at Levi's next-door neighbor's house. I have never seen such gloom and grief in my life. Dozens of Amish were quietly and tearfully sitting on rows of benches -- men in one group, women in the other, as is their custom.

I could barely recognize Levi, so transfigured were his features by sorrow. We shared a quiet, private word. Jake, his father, was sitting next to him. He couldn't speak. I just stayed by his side for a few minutes, hand gently touching him in wordless sympathy. Later a tearful Nancy softly voiced her deep faith to Eileen and me, bravely affirming, "God is in control."

I went to visit Jake and Nancy two days after the funeral. They reported that Levi was trying to buoy up everyone's spirits. The next day, I spent a half-hour with Levi, and found that to be the case. Though still trying to come to grips with this inexplicable calamity, he continues to be a loving soul, caring deeply for those around him. He has already learned the secret discovered by Job in the Bible, that the key to recovery and renewal from grievous affliction is to pray for one's friends.

A tragedy of this magnitude puts things in perspective. Why do we waste our scarce and precious time on earth with trivial concerns and petty quarrels?

One of my college classmates told me that her dad's advice on her wedding day was, "Don't sweat the small stuff." Amen. Let us all honor the gift of life by forgiving and forgetting our misunderstandings, small and great, and use our brief time on earth to do a better job of loving each other. Let us follow Levi's example.

Reservations About a Balanced Budget Amendment

Calling for a balanced budget amendment has been a staple campaign issue for conservative Republicans for years. Undeniably, our nation is beset by fearful fiscal woes. However, a balanced budget amendment isn't the answer.

Let me emphasize that I endorse a balanced budget in principle. Indeed, in my recent article, "Good Cop, Bad Cop," I wrote, "The greatest threat to our country's future is chronic overspending by the federal government." Government, like individuals, should live within its means, and because it isn't, we are bankrupting ourselves and perpetrating a great evil on our children by saddling them with a national debt that now exceeds $13 trillion.

Further, I reject the economic orthodoxy that claims that government has mystical power to spend us into prosperity by running deficits. All deficit spending can do is what an inflationary monetary policy does, namely, distort production, not produce a net increase in sustainable production.

In short, then, I believe that balancing government budgets is a virtue and that government fiscal deficits are a vice. So what objections could I possibly have to a balanced budget amendment? I have two . . . well, make that two-and-a-half.

The "half" is my skepticism about the facile notion -- so common among both conservatives and liberals -- that laws and amendments solve every problem. Not so. In practice, no law can work unless there is the will to enforce it and abide by it. Remember Public Law #95-435? Of course not. Adopted by Congress in October 1978, it was one of several laws solemnly binding Congress to a balanced budget (in that case, by 1982). Needless to say, Congress has perennially proven incapable of abiding by such laws.

Ah, but wouldn't enshrining a balanced budget in the Constitution itself accomplish the goal? I doubt it. I've already written about the way the Constitution is selectively observed. An additional reason for skepticism is that many state governments are running large deficits despite state constitutions that expressly ban deficit spending.

Let's assume, though, that human nature is transformed so that Congress would actually balance the budget if the Constitution said it must. There reside the two major problems with passing a constitutional amendment to balance the budget:

The first problem is a practical consideration. How would Congress close a deficit of $1.5 trillion? While free-market economists like yours truly would love to see federal spending cut by $1.5 trillion (actually, by more!), can you imagine the political donnybrook in Washington this would precipitate? The only way the Big Government majority in Washington would agree to a balanced budget would be to raise taxes one dollar for every dollar of spending cuts. In other words, the best we could hope for would be spending cuts of three-quarters of a trillion dollars combined with increasing tax revenues by three-quarters of a trillion dollars. Ouch! In the economy's current weak condition, increasing the tax burden by $750 billion would absolutely crush us. This "cure" would kill the patient.

The other problem with a balanced budget amendment is that it would legitimize current constitutional abuses. As it currently stands, the Constitution does not authorize most of what the federal government spends.

The Founders crafted a Constitution of limited enumerated powers of government. They clearly were of the "strict construction" school, believing that the federal government should do only what the Constitution explicitly stipulates and nothing else.

In the decades since, the "loose construction" philosophy has mangled that original intent by adopting the opposite view that the federal government can do anything that the Constitution doesn't explicitly state that it can't do -- a formula for virtually unlimited, infinitely elastic expansion of government.

If we, as a country, would strictly abide by the letter of the Constitution, federal spending would be a mere fraction of what it currently is. We wouldn't have trillion-dollar deficits and nobody would be talking about a balanced budget amendment.

Amending the Constitution requires prodigious effort. That is why it has been done fewer than 20 times since the Bill of Rights was ratified in 1791. Rather than knock ourselves out trying to amend the Constitution, let's strive to restore a correct understanding of the Constitution. We don't need to amend the Constitution as much as we need to read it, understand it, and abide by it.

The Founders have given us the only tool we need to put an end to deficit spending. Let's begin using it.

America Needs Union Competition

I agree with President Obama that we need more labor unions. However, I disagree with his approach.

Full disclosure: I have been a dues-payer to both the United Auto Workers and the National Education Association unions. My sympathies are heavily tilted toward the interests of the men and women who do the work that makes America go.

For that reason, I strongly oppose the dishonestly named "Employee Free Choice Act," which aims to deprive workers of secret ballots when voting for or against union representation. You don't benefit workers by stripping them of basic democratic protections.

Team Obama made another anti-democratic, anti-worker, pro-union move on May 10. The National Mediation Board (with an Obama appointee providing the tie-breaking vote in a 2-1 decision) overturned 75 years of established policy by ruling that aviation and railway workers can unionize without the approval of a majority of members. Now, union organizers only need to obtain a majority of votes actually cast. By manipulating who votes, as well as when, where, and how, union organizers will be able to thwart genuinely democratic decisions.

There are better ways to increase the number of labor unions. Let us revise existing labor laws to make it easier for unions to form in ways that increase the number of unions from which American workers could choose.

First, let's amend the Clayton Antitrust Act of 1914. That law was designed to prevent monopolies, but it explicitly exempted labor unions. Let's repeal that exception.

We generally agree that monopolies are bad and that competition is good. Why do we end up with the best cars, the best cell phones, the best personal computers, etc.? Simple: The relentless pressures of competition drive companies to provide more value for fewer consumer dollars. And what explains the abominable performance of many public schools, the higher death rates in the United Kingdom's nationalized healthcare system, and the lousy quality of American currency (Federal Reserve Notes having lost approximately 98 percent of their purchasing power in less than a century)? Equally simple: The lack of competition to which these government-mandated monopolies or near-monopolies are exposed. Introduce competition into these markets, and quality would improve markedly.

The same principle holds true for labor unions. If unions had to compete to represent workers' best interests, they would be more accountable and responsive to the workers whose dues they take.

For example, think of Republican teachers who may feel that the benefits they receive from their mandatory NEA dues are outweighed by the NEA's practice of spending those dues overwhelmingly in support of liberal Democratic causes. These teachers would be free to join a competing union that supports GOP initiatives, or, alternatively, a completely apolitical union.

Think of the job-security issue: Given the abject failure of the UAW and other monopolistic unions at preserving the jobs of their members, wouldn't it be fairer if workers had the option to join unions that emphasize long-term job security over higher compensation packages in the short run? Under the current system, union bosses have every incentive to pay themselves lavish compensation, even as they cannibalize the jobs of their rank and file.

If unions had to compete for members, surely there would be fewer scandals of union brass using union treasuries as personal piggy banks.

Another needed reform is to end the "union shop" principle. Americans need to be free to join or not join whatever organizations they choose. How can a person be considered free when he or she is either prohibited from joining or contributing to an organization that he admires or, conversely, compelled to join or contribute to an organization that he loathes? The right to join was protected when the Norris-LaGuardia Act of 1932 outlawed "yellow dog" contracts under which employers denied workers the right to join a union. The right not to join is violated by the Wagner Act of 1935 and Taft-Hartley Act of 1947, under which workers may be compelled to pay dues to a monopolistic union as a condition for having their job. Those acts should be amended.

In short, let's end union monopoly and forced-dues privileges, and let new unions emerge and compete to best serve their members' interests. If there had been open competition between unions over the past century, who knows what creative and effective nongovernmental solutions would have been found to address workers' concerns about pensions, healthcare, unemployment insurance, etc.?

Too many American workers have been denied the benefits of competition for far too long. Enough is enough. Let competition between labor unions begin today. Let the number of unions proliferate and let workers choose to ally themselves with whatever unions best serve their needs. *

"With respect to future debt; would it not be wise and just for that nation to declare in the constitution they are forming that neither the legislature, nor the nation itself can validly contract more debt, than they may pay within their own age . . ." --Thomas Jefferson

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Values.

The Governing Elite vs. the Rest of Us

The truly revolutionary American idea of government as the servant of the people may be fading away. Many of today's so-called "civil servants" are a protected, privileged class. While Middle America struggles through a difficult recession, a lot of government employees have lived on the gravy train.

Here are some facts to buttress that assertion:

Since the recession began in 2008, a period during which approximately eight million private-sector workers lost their jobs and millions more saw their income decline, the number of federal employees is increasing at a 7 percent per-year rate and their income is holding up quite nicely. According to the Cato Institute, the average federal worker's pay and benefits now approximates $120,000 per year, or roughly double the compensation of the average private-sector employee. Factor out the lavish government fringe benefits and look at salary only, and the civil servant is still far ahead: $71,197 vs. $49,935.

During this recession, the percentage of federal employees earning annual base salaries above $100,000 increased from 14 to 19 percent. The number of Defense Department employees being paid more than $150,000 per year increased from 1,868 to 10,100. Before, the Department of Transportation had one employee with a salary above $170,000, but now has 1,690.

As a gesture toward fiscal responsibility, President Obama reduced what was supposed to be a 2.4 percent raise in federal salaries this year to 2.0 percent. That still compares quite favorably to the zero-percent cost-of-living increase that Social Security recipients have received.

Also on tap are handsome pay raises for the employees of the Federal Housing Administration. The FHA has distinguished itself recently by incurring a loss of $54 billion in a mismanaged home-loan business. And of course we can't neglect to mention the CEOs of Freddie Mac and Fannie Mae, who have been cleared to receive as much as $6 million in salary this year while being subsidized to the tune of over $100 billion in monetary transfusions from the Treasury and the Fed.

Other federal agencies may not be losing money by the tens and hundreds of billions of dollars in such an obvious way, but money appropriated for them by Congress still seems to vanish into a black hole. For example, statistics from 2006 showed that if all the federal dollars spent by antipoverty programs had been given directly to Americans below the poverty line, a poor family of four would have received $67,000. The actual aid received by poor Americans is less than half that amount. What explains such glaring inefficiency? Most of those funds are consumed by the cushy pay packages of the army of bureaucrats who administer those programs. And let's not even get into the Department of Agriculture, which has one bureaucrat for every nine or ten full-time farmers.

The preferential treatment received by government employees was also reflected in how last year's stimulus money has been spent. According to ProPublica, the District of Columbia received more than four times as much money per capita as the average of the 15 states that received the most money. (Oh, did I mention that members of the Pelosi/Reid Congress voted themselves a 6 percent increase in funds for their staffs and other support?)

It isn't just the federal government workers who have an unusually lucrative setup. Governor Christie of New Jersey recently announced his intention to reform the pension plan for the Garden State's public employees. Consider an incredible fact: According to Christie, a 49-year-old state employee who had contributed $124,000 toward his retirement is eligible to receive $3.3 million in pension payments and another half million dollars in heath care benefits over the rest of his life; and a retired teacher who had put $62,000 toward her pension and not a penny for health care is scheduled to receive $1.4 million in pensions and $215,000 in health care benefits. Taxpayers pay for this.

This story is repeated over and over in a number of states that now teeter on the brink of bankruptcy due to billions of dollars of obligations to state employees. It's hard to refer to these people -- many of whom, of course, are wonderful, decent human beings -- as civil "servants" when their salaries and/or benefits are so much higher than those of the taxpayers who pay for the generous compensation packages of their government "servants."

Abraham Lincoln's ideal of government "of the people, by the people, for the people" seems to have become government of the governing elite, by the governing elite, and for the governing elite. The current imbalance can't continue. Something's got to give.

The VAT-Man Cometh?

Recently, progressives have made noise about introducing a value-added tax (VAT) in the United States. The VAT is an indirect tax -- that is, Americans wouldn't pay the tax directly to government, but would pay it to businesses as part of the retail price of things we buy, and businesses would then remit the tax to Uncle Sam.

A VAT is set at a fixed rate -- say, 10 or 15 percent -- added to the price of a good at every step of production, with a deduction allowed for the amount of VAT paid during earlier stages of production. The more steps there are in transforming raw materials into complex consumer goods, the higher the resulting consumer price as a result of those multiple layers of taxation.

Many countries have VATs, including Canada, Mexico, and the European Union. One might say that a VAT is an emblem signifying that a country's government consumes a large percentage of its GDP, for VATs seem to go hand-in-hand with big-budget nanny states.

The reason for this phenomenon is simple: Any government that seeks to be all things to all people, and therefore seeks to spend ubiquitously, must inevitably seek to tax ubiquitously. Such governments have insatiable appetites for revenue. Because VATs are cash cows, diverting huge sums of money from consumers to government, they are favorites of big-spending governments.

Unfortunately, though, VATs have significant negative economic consequences. Because they inflate consumer prices, quantities demanded fall. Most often, the marginal buyers who can no longer afford to pay the higher price are poorer citizens. When government policy raises prices, the first victims are poor people.

The second victims of a VAT are the workers who will lose their jobs as a result of falling demand for the newly higher-priced goods.

Many affluent Americans may not curtail their consumption, but because more of their money is diverted to the government treasury, their savings must correspondingly decline. This results in decreased capital accumulation, which, in turn, slows business expansion, development, and formation. It also slows the growth rate of labor productivity, hence retarding economic progress for workers.

The desire of today's big spenders in Washington to greatly increase their revenues is reminiscent of how FDR financed his spending binge during the Great Depression. During the 1930s, federal revenues from the income tax fell the more tax rates were raised. (Congress, take note.) To raise more revenue, FDR and Congress increased excise taxes -- taxes embedded in the price of common consumer goods like gasoline, milk, and cigarettes. The effectiveness of those taxes as generators of government income derived from the fact that those taxes are difficult to avoid, unless you can live without milk, gasoline, etc.

VATs are essentially excise taxes. They are economically destructive and hit society's most vulnerable members the hardest. Here let me offer both a political strategy to resist the imposition of a VAT and an alternative proposal for opponents of a VAT to rally around:

The strategy is a recommendation to Republicans to not obsess about or campaign for balanced budgets. This is not to say that deficits don't matter. They do, and they've got to go.

The problem with focusing on a balanced budget is that it sets up a dynamic of balancing spending cuts and tax increases. Tax increases, as we have already seen, depress economic conditions. Who can get excited about that kind of economic plan? Deficits need to be eliminated by cutting spending, however unpopular that may be in certain quarters.

As economists for the past two centuries have made plain, the real burden of government is not what it taxes but what it spends, because whatever it spends comes at the expense of citizens, whether via taxes, borrowing, or creating additional Federal Reserve Notes. Reducing the burden of government means slashing government spending, not raising taxes.

Here is a counterproposal: Instead of adding yet another "stealth" tax -- the VAT -- to the many excise taxes already in place, let's have Congress pass a truth-in-labeling law.

Let's require all excise taxes and all other hidden taxes (e.g., payroll, real estate, franchise, excise) that are embedded in the price of consumer goods to be listed in plain sight. Put the dollar amount of those taxes on price signs, price tags, and at the point of sale. Then, Americans will be able to clearly see how much they are paying in indirect taxes to government.

What's holding you back, Congress? You aren't afraid of the truth, are you?

Sen. Dodd's Financial Reform Bill: The Problem of Leverage

Trying to keep up with all the changes in U.S. Sen. Chris Dodd's (D-Conn.) financial reform bill has been a daunting task. Two weeks ago, it was described in the press as "the 1100-page bill." Last week, it became "the 1400-page bill." And within a day or two -- voila! -- we were reading about "the 1600-page bill." The Dodd bill has been morphing at a rapid rate. Shades of health-insurance reform!

Most Americans support a government attempt to regulate exotic, esoteric, unregulated, and nontransparent financial derivatives. Warren Buffett calls such exotica "financial weapons of mass destruction."

Derivatives shook the country's financial system to its foundations in 1998, when Long-Term Capital Management's derivatives pyramid imploded, and then again in 2008-9 with AIG's portfolio. Despite these near-death experiences, published guestimates of the total notional value of derivatives held by U.S. banks remain in the $200-billion range. (Total U.S. GDP is only about $14 trillion.)

The Dodd bill aims to reduce risk by placing stricter limits on financial leverage. The irony -- and, I believe, the danger -- of the bill is that, while seeking to reduce financial leverage, it seems designed to increase political leverage; that is, the government's power and control over financial firms.

President Obama, Sen. Dodd, and other supporters of the bill say that the bill will protect Americans from the financial fallout of major bankruptcies by authorizing federal regulations to shut down financial institutions in an orderly fashion when they start to fail. In theory, that sounds commonsensical and innocuous. In practice, it could be problematical.

Who decides when a firm is starting to fail? Like the heavenly emissary in the movie "Heaven Can Wait," who took a man's soul prematurely, only to later discover that the man would have survived and shouldn't have died, financial regulators may pull the plug on institutions that could find ways to come back from the precipice of failure.

Worse, think of the leverage that regulators could wield over private companies if they held life-and-death power over them: "Listen, Ms. CEO, the guys at Treasury think you should do A, B, and C. Do what you want, but if you don't do them, they may pull the plug on you." The Dodd bill could make vassals and serfs out of all financial institutions. A president could effectively cartelize the industry.

Another provision of the bill desired by President Obama and Sen. Dodd is for the SEC to be given increased influence in elections for corporate boards of directors. The SEC already is a politicized agency. Many of us suspect that the SEC's recent charges against Goldman Sachs were not based on solid legal grounds, but were announced when they were to drum up support for the Dodd bill. I'm no fan of Goldman Sachs, but neither do I believe that a politicized attack dog like the SEC should gain more leverage over private companies.

Lastly, there is the question as to whether this alleged financial reform halts or codifies taxpayer-funded bailouts of financial institutions.

President Obama flatly denies that the Dodd bill includes bailout provisions. Speaking in New York on April 22, he said, "a vote for reform is a vote to put a stop to taxpayer-funded bailouts. That is the truth."

Contradicting the president are two members of Congress from the president's own party. Sen. Ted Kaufman (D-Del.) worries that the bill expands "the safety net . . . to cover ever-larger and more complex institutions heavily engaged in speculative activities," thereby "sowing the seeds for an even bigger crisis." Rep. Brad Sherman (D-Calif.) categorically states, "The bill contains permanent bailout authority."

You decide for yourself who is telling the truth. The Congressional Budget Office seems to side with Kaufman and Sherman. CBO examined the budgetary impact of the bill's $50-billion resolution fund for large insurance and securities companies, hedge funds, and other non-bank firms deemed "systemically important."

This language raises serious questions: Which firms, exactly, will be deemed "systemically important?" Will they be told ahead of time, thereby increasing moral hazard? Are there specific guidelines that will be transparent and available to all so that they know where they stand, or will the requirements for "systemically important" status be kept secret? Would regulators be constrained by fixed rules, or would they be free to arbitrarily decide which firms are the ones anointed for rescue?

Judging by his track record so far, President Obama likes to play Big Brother to private businesses, rewarding his friends while stiffing others. The Dodd financial reform could bring us more of the same.

The "Social Justice" Fallacy? Wolves in Sheep's Clothing

Many Christians over many years have been beguiled by the Religious Left's use of the term "social justice." This is because Christians rightly love justice and hate injustice. But "social justice" -- or, at least, how it's often used by liberal Christians -- isn't necessarily biblical justice.

The standard of biblical justice is equal treatment by law: "Thou shalt not respect the person of the poor, nor honour the person of the mighty." (Leviticus 19:15) Justice not only means that nobody is to be picked on because he is poor or favored because he is rich, but that (contrary to the doctrine of "social justice") nobody is to be picked on because he is rich or favored because he is poor. Everyone's rights deserve the same protection. Thus, nobody should be taxed at a higher rate than his neighbors, nor should anyone receive special government handouts.

The modern left's "social justice" strives for economic equality. It endeavors to reduce, if not erase, the gap between rich and poor by redistributing wealth. This is "justice" more akin to Marx and Lenin, not according to Moses and Jesus. It is a counterfeit of real justice, biblical justice. Modern notions of "social justice" are often wolves in sheep's clothing.

The fundamental error of today's "social justice" practitioners is their hostility to economic inequality, per se. "Social justice" theory fails to distinguish between economic disparities that result from unjust deeds and those that are part of the natural order of things. All Christians oppose unjust deeds, and I'll list some economic injustices momentarily. First, though, let us understand why it isn't necessarily unjust for some people to be richer than others:

God made us different from each other. We are unequal in aptitude, talent, skill, work ethic, priorities, etc. Inevitably, these differences result in some individuals producing and earning far more wealth than others. To the extent that those in the "social justice" crowd obsess about eliminating economic inequality, they are at war with the nature of the Creator's creation.

The Bible doesn't condemn economic inequality. You can't read Proverbs without seeing that some people are poor due to their own vices. There is nothing unjust about people reaping what they sow, whether wealth or poverty.

Jesus himself didn't condemn economic inequality. Yes, he repeatedly warned about the snares of material wealth; he exploded the comfortable conventionality of the Pharisaical tendency to regard prosperity as a badge of honor and superiority; he commanded compassion toward the poor and suffering. But he also told his disciples, "ye have the poor always with you" (Matthew 26:11), and in the parable of the talents (Matthew 25:24-30) he condemned the failure to productively use one's God-given talents -- whether many or few, exceptional or ordinary -- by having a lord take money from the one who had the least and give it to him who had the most, thereby increasing economic inequality.

The Lord's mission was to redeem us from sin, not to redistribute our property or impose an economic equality on us. In fact, the Almighty explicitly declined to undermine property rights or preach economic equality when he told the man who wanted Jesus to tell his brother to share an inheritance with him, "Man, who made me a judge or divider over you?" (Luke 12:14).

All that having been said, there is much injustice in our world, much needed reform that all Christians can unite in accomplishing. Around the world, many people are poor and will never realize their God-given potential due to lack of freedom and opportunity. Let us never be on the side of those who reject man's God-given rights and biblical justice, and who oppress and impoverish in the name of a spurious economic equality.

In relatively free societies such as our own, we must continue to combat the economic injustices of theft, fraud, deceit, trickery, etc. We should strive to undo the injustices perpetrated by unethical public policies, such as the subtle theft of citizens' purchasing power via central bank inflation; the corrupt government practice of doling out earmarks, subsidies, and myriad special favors, often to big businesses and wealthy individuals; destructive tax policies that decapitalize society, thereby retarding growth in labor productivity, wage increases, and higher standards of living; runaway government spending that imposes an incalculable and unconscionable debt burden on the next generations, etc. We should be charitable.

By all means, let us tackle these persistent injustices. But let us be careful to abide by the biblical standard of impartiality and equal treatment by law, lest we create additional injustices.

Financial Intrigue in Greece: Should We Care?

The intertwined worlds of government and finance are swirling with drama not seen since the fall of Lehman Brothers in 2008. The epicenter of the current crisis is Greece. The Aegean nation's sovereign debt has been downgraded to "junk" status while talk of outright default by the Greek government has arisen. The very survival of the euro -- the 11-year-old currency used by Greeks and over 300 million other Europeans -- has been brought into question.

Yields on the Greek government's two-year notes have soared from 2.1 percent to 18.9 percent in the last few months, producing what one analyst termed "bond market Armageddon." The Secretary General of the Organization for Economic Co-operation and Development (OECD) has likened the bond market panic to the Ebola virus; the head of the International Monetary Fund (IMF) has warned of "contagion"-- the potential for Greece's sovereign debt crisis to spread to other heavily indebted European states.

How did Greece get into this mess? The primary cause has been fiscal irresponsibility. Sovereign governments that join the European Union pledge to keep their budget deficits below 3 percent of GDP. Greece's most recent deficit is estimated to be almost 14 percent. It didn't get there in one year. It turns out they have been lying about their deficits for years, employing those financial bad boys at Goldman Sachs to devise devious schemes for disguising the extent of their deficits.

Greece's total indebtedness approximates 120 percent of GDP. Combined with this year's 14 percent deficit, such massive quantities of red ink suggest that Greece is essentially broke and its currency is due to take a tumble.

Here is where it gets complicated: Greece shares the euro with 15 (officially) or 20 (unofficially) other European countries. A devaluation of the euro makes no sense for European Union members with sounder fiscal policies. The inherent, perhaps fatal, flaw of the euro currency is that each member country pursues its own fiscal policies, some of which inevitably must be incompatible with the European Central Bank's monetary policies.

Greece clearly needs to get its fiscal house in order if it is to regain financial credibility and stability. It lacks the political will to do so. Proposals to reduce government spending have caused Greek Air Force pilots to go on strike, anarchists and students to throw Molotov cocktails, and unions to call for a nationwide strike beginning May 5.

One raging debate has been whether Germany, the economically dominant European state, would bail out Greece. On the one hand, many Germans still resent the immense costs of re-integrating East Germans into the German economy after the dissolution of the Soviet bloc. If hard-working, industrious, fiscally disciplined Germans are fuming about helping their fellow Germans, who developed an entitlement mentality during their decades under socialism, they surely won't want to bail out profligate Greeks.

Ah, but again there is a complicating factor: German banks, it turns out, own nearly half of Greece's debts. Thus, German politicians are wrestling with the vexing question of whether they will incur greater voter wrath by bailing out undeserving Greek deadbeats or by doing nothing and possibly precipitating a major crisis in the German financial system.

Should Americans care about all this? Not long ago the euro was being touted as a possible competitor with the dollar for global foreign currency reserves. Not today. But if you are tempted to gloat, here are two reasons why you shouldn't:

1) We Americans have become a significant player in the stopgap Greek bailout. That is because the IMF has been like the cavalry riding to the rescue, promising big bucks to the Greek government. Since the largest contributions to the IMF come from the American taxpayer, we find ourselves once again picking up the tab for a bailout -- this time, not for rich American financiers, but for corrupt and profligate foreign governments and special interest groups.

2) Our own debt and deficit figures are not too far from being as parlous as Greece's. At $1.6 trillion, this year's federal debt is over 11 percent of our GDP, while our total (explicitly acknowledged) national debt is pushing the 90 percent-of-GDP threshold. Greece may be giving us a sneak peak at our own sovereign debt crisis in the not-so-distant future.

These are historic times. We may be at the beginning stages of a great unraveling of several widely believed political myths -- that democratic governments can exercise sufficient fiscal restraint to preserve their ongoing financial viability; that unbacked paper currencies imposed by governments and central banks can provide a long-lasting, sound medium of exchange; that countries can't go broke; and that government debt is a relatively safe investment.

The current Greek tragedy shows us that democratic welfare states, predicated on the belief that citizens have the right to live at the expense of fellow citizens, are economically untenable and inherently suicidal. *

"Where is the security for property, for reputation, for life, if the sense of religious obligation deserts the oaths . . .?" --George Washington

Some of the quotes following each article have been gathered by The Federalist Patriot at: http://FederalistPatriot.US/services.asp.

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Values.

The Theory of Moral Sentiments: Adam Smith's Timely and Timeless Classic

Last year, 2009, marks the 250th anniversary of the publication of Adam Smith's masterful treatise on ethics, The Theory of Moral Sentiments. Smith, primarily known today for his hugely influential 1776 work on political economy, The Wealth of Nations, was a professor of moral philosophy. The Theory of Moral Sentiments is stunningly relevant today.

Whereas The Wealth of Nations featured the "invisible hand," the metaphor that dominates Moral Sentiments is "the impartial spectator." The "spectator" represents one's conscience -- one's ability to perceive the divinely ordained objective standard of right and wrong.

In Smith's view, conscience is both a divine spark in mankind and also the product of reason. Indeed, Moral Sentiments (like Western civilization itself) is a synthesis of Greek Stoic philosophy and Christian thought.

The genius of Moral Sentiments lies in its clear, thorough explanation of the necessary preconditions for social harmony. Smith cites three cardinal social virtues: prudence, justice, and beneficence. Indeed, as we survey our discordant, divided society today, we can see that many of our problems stem from confusion about these three virtues. Smith, in spite of writing his book so long ago, provides the solutions to today's most vexing social problems.

By "prudence," Smith means the practical steps that a person takes to provide for his own needs and wants. For able-bodied adults to shun this basic responsibility is self-destructive and antisocial.

Smith's second social virtue, justice, is "the main pillar that upholds the whole edifice" of society. As essential as it is, though, justice "is entitled to very little gratitude" because "it does no real positive good" and "is . . . but a negative virtue" that "only hinders us from hurting our neighbour."

Smith is right. We don't feel gratitude to others for not killing or robbing us, because they are simply refraining from what they ought never to do. Yet when people do not refrain from infringing our basic rights, society disintegrates. Thus, the irony that just behavior is at once the virtue that is least deserving of praise, but most indispensable for society's wealth.

Smith's third social virtue, beneficence, deserves the highest approbation, for it represents the greatest good that one can do beyond the call of duty. Beneficence, though, is never a duty. More specifically, it may be one's duty to God as a practicing Christian, but it can never be made a legally compulsory duty to one's fellow man. Here Smith illuminates the essential difference between law and gospel that still confuses and divides Christians today.

In Smith's words:

Beneficence is always free, it cannot be extorted by force, the mere want of it exposes to no punishment; because the mere want of beneficence tends to do no real positive evil.

Beneficence . . . is less essential to the existence of society than justice. Society may subsist, though not in the most comfortable state, without beneficence; but the prevalence of injustice must utterly destroy it.

Beneficence "is the ornament which embellishes, not the foundation which supports [society]."

Government force may only be used to enforce justice (i.e., to restrain or punish those who would infringe the rights of others) but not to enforce prudence or beneficence. A government that would presume to compel citizens to work (or threatens to lock up citizens who prefer not to purchase health insurance) violates the very rights it is supposed to protect. So does a government that compels the redistribution of property from some citizens to others, because such deeds would violate the necessary and fundamental principle of justice.

Meddlesome do-gooding -- the pseudo-charity whereby A and B use governmental force to bestow unearned benefits upon C that are paid for by D -- is unraveling the fabric of society today. When one looks to Washington, one sees that Smith has captured with uncanny accuracy the mentality and spirit of present-day social engineers, central planners, and redistributors of property:

The man of system . . . is apt to be very wise in his own conceit, and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it . . . he seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board.

The political reformer manifests "the highest degree of arrogance." He seeks "to erect his own judgment into the supreme standard of right and wrong." He:

. . . fanc[ies] himself the only wise and worthy man in the commonwealth, and [believes] that his fellow-citizens should accommodate themselves to him.

This attitude leads to "the madness of fanaticism" among the political leaders of radical reform, while the mass of followers are:

. . . intoxicated with the imaginary beauty of the ideal system, of which they have no experience, but which has been represented to them in all the most dazzling colours in which the eloquence of their leaders could paint it. Those leaders themselves, though they originally may have meant nothing but their own aggrandizement, become, many of them, in time the dupes of their own sophistry.

Indeed, I don't believe it is possible for any current book analyzing contemporary America to surpass Adam Smith's classic Theory of Moral Sentiments in terms of lucid insight and timely (and timeless) wisdom.

Obama's Anti-jobs Policy

High and/or rising unemployment is always a political liability for a president, and so Barack Obama has taken the offensive in trying to persuade the American people that his team can get Americans back to work.

In November, Obama took credit for having created 640,000 jobs. That audacious assertion was less than persuasive, coming as it did near the end of a year during which the number of employed Americans declined by over four million while the unemployment rate rose from 8 percent to 10 percent.

Team Obama's credibility came into question again when alert reporters pointed out an embarrassingly large number of "inaccuracies" in the Obama administration's claims of jobs "saved" and "created" by the stimulus plan he pushed through Congress last winter. This included isolated stories about things like more than 900 jobs being saved in a Georgia business with only 500 employees. Then it quickly snowballed when researchers examined Obama's recovery.gov website and tabulated official claims of tens of thousands of phantom jobs in nonexistent congressional districts.

This unseemly episode raised issues of competence and trust in terms of whether Team Obama had what it took to help the unemployment situation (and never mind whether these are the people you want redesigning the country's healthcare and energy industries). In fact, it proved to be an advantageous diversion for Team Obama, because it deflected attention away from the administration's actual record of adopting policies that have increased the number of unemployed Americans.

In June, the minimum wage rate increased 75 cents. This government intervention priced many young Americans out of jobs, with the unemployment rate for black teens rising from an already-too-high 39 percent to an abominable 50 percent.

Team Obama's aggressive attempts to raise taxes on businesses and employees to pay for his healthcare plan would significantly increase the costs of employing people, making businesses afraid to hire. And the cap-and-trade scheme would increase energy costs dramatically, further adding to business worries. (Incidentally, economic studies have shown that Obama's cap-and-trade program would reduce American employment by between one to two million jobs per year.)

Another factor that has aggravated unemployment this year is that Uncle Sam's enormous budget deficit has consumed virtually all the available credit, crippling the ability of private businesses to hire new workers.

Obama's fundamental problem regarding jobs is that he believes all that baloney about government having quasi-deific powers as an alleged "creator" and "savior" of jobs. Yes, government can put people on its payroll or prop up certain jobs, but only by redirecting scarce capital and resources from elsewhere in the economy, thereby reducing employment in the private sector.

Examples abound:

What about the Obama hype about creating new "green" jobs? Lots of luck! Germany's government tried this, and every "green" job cost $240,000 and raised the overall unemployment rate. Each solar energy job in sunny Spain resulted in the loss of 2.2 other jobs.

Even in our own nation's history, it is no coincidence that unemployment stubbornly remained at atrocious levels for all the years that FDR's jobs programs were in place.

As history shows, governments are not creators and saviors of jobs on a net basis, but effective destroyers of jobs.

A little economic knowledge explains why this happens.

When a job exists only because of a government subsidy (whether in the form of a grant, a tax credit, or any other policy device), then what the job produces is worth less than the worker is being paid. Society as a whole is made poorer by the difference between the value of what the worker produces and what the government pays him, and that wealth is withdrawn from the private sector. Even if government could miraculously hire workers to do exactly the work that citizens want most and pay them true market wages (and no government planners ever have sufficient specific knowledge to make these decisions, which is why centrally planned economies always stagnate), such a program would make society poorer and therefore reduce overall employment. Why? Because of the overhead costs of administering the program: the armies of bureaucrats (with their cars and offices) needed to study, administer, and keep records on the government-employed "non-governmental" workers.

The Obama/Pelosi/Reid axis rushed to defuse the fake jobs scandal of November by holding a "jobs summit" in December. The outcome of that summit was more of the same failed policies of government spending and government subsidies that will finance uneconomical jobs at the expense of economically rational jobs in the private sector. As a result, high unemployment will persist throughout 2010.

One of the tragedies of Barack Obama's presidency is that the more he tries to use government to improve the job market, the more he throttles that market. Let go, Mr. President. You're making things worse.

The Student Loan Problem

You may have seen the recent story about the 41-year-old doctor who graduated from medical school in 2003 with student-loan indebtedness of $250,000 that has since swelled to more than $555,000. She is now scheduled to pay $990 per month until she is 70 years old. Ouch!

This is an extreme example of a widespread problem. Only 40 percent of the $730 billion of outstanding student loans are actively being repaid. This isn't healthy for financial institutions and it isn't healthy for many young Americans. Just as was the case with the ongoing mortgage fiasco, there is plenty of blame to go around for this sorry state of affairs.

It's easy to say that those who borrow to pursue their post-secondary education bear the primary responsibility. The first rule of survival in a market economy is caveat emptor ("let the buyer beware"). Nobody forced anyone to go into debt.

Still, it is significant that almost all student loans are taken out by Americans too young to know what it takes to pay their bills and make a living on their own. Undoubtedly, some unscrupulous students will borrow money with every intention of avoiding repayment; however, I believe that most borrowers sincerely intend to fully repay their debt. The problem is -- due to their lack of maturity and, yes, intellectual development -- they literally have no idea how hard it can be to repay $50,000 or $100,000 of debt.

My wife and I recently entertained two of her former college students -- intelligent, talented young ladies laden with considerable debt. The one owes over $100,000 and has a bachelor's degree in theater. She has an entry-level position with a business, and no realistic prospect of repaying her debt before she turns 40. Much wiser now at age 23, she realizes the gravity of her predicament. She most emphatically wouldn't have sustained such debt if she had known then what she knows now, but now she's stuck.

Like many young adults in her position, the price for her indebtedness is more than monetary. There are very few young men out there who are willing to marry somebody with a six-figure debt chained to her ankle. (Apologies to all the romantics out there, but that's the way it is.) Here you have someone whose strongest desire is to be a wife and a mother, but her student-loan debt makes her a leper to most men in the marriage market. Sad.

I have heard people suggest that colleges and universities provide debt counseling to students so they don't get in too deep. My employer, Grove City College, requires students to attend debt management seminars as a requirement for participating in its privately funded loan program. That is a wonderful program, but the reality is that colleges are businesses and, like all businesses, are hungry for revenue. Expecting them to counsel students to drop out or transfer to an inexpensive junior college is like expecting a fox to warn chickens not to go into foxholes because they might be eaten. It just isn't the nature of the beast.

That leaves the lenders. As was the case with defaulted mortgages, lenders protest that they explained the dollars and cents of the student loans thoroughly. And again, it is safe to assume that some of them really did, just as some of them really did not alert starry-eyed, naive youngsters to the pitfalls inherent in taking on large debts. Let's face it, if loan officers profit from issuing loans, they have every incentive to write as many as they can.

Normally, I would say there is nothing objectionable about that, but in this case, I believe that public policy once again is guilty of having altered normal market incentives. I refer to laws that make it almost impossible for student loans to be erased through bankruptcy.

Now don't get me wrong -- I believe strongly that debts should be repaid. A society that makes it too easy for individuals to walk away from their financial obligations does not sufficiently uphold the foundation of economic progress -- property rights -- and consequently jeopardizes economic progress. But in the student-loan market, government has created moral hazard: Knowing that government will take extraordinary measures (even garnishing unemployment checks) to see that student loans are repaid, issuers of student loans feel bulletproof, and proceed to crank out as many loans as they can. If they knew that they might lose their loans through normal bankruptcy proceedings, they would do what prudent lenders always should do: Assess risk very carefully and issue fewer loans to starry-eyed kids who want to pay $30,000 per year for a degree with minimal market value.

I don't pretend to know how to get out of the current mess. It would have been much preferable had we never gotten into it. I do believe, though, that it isn't right for financially incompetent young Americans to be penalized for decades because no adult who knew better stopped them from making a foolish financial mistake. Let's have some mercy here.

A Moment of Illumination

We've all had those sudden epiphanies where the proverbial light bulb clicks on and understanding comes into clear focus. I had one of those moments over the Christmas holiday season. In this case, the light bulb experience was literal as well as figurative.

Here is what happened: My wife came home all excited because she had found strands of battery-powered Christmas lights to add some pizzazz to a couple of wreathes in our living room. The excitement gave way to glumness as soon as the "on" switch was turned. Instead of bright, cheery, Christmassy points of light, the LED bulbs emitted a pale, weird, sickly light of indeterminate bluish hue. Yuck!

Welcome to the dreary world of politically correct Christmas lights. Such wan, ghastly Christmas lights may bring joy to the hearts of worshipers of Gaia and those who put up "unity trees" instead of Christmas trees, but for those of us who are still quaint and old-fashioned enough to want a festive and joyous atmosphere in which to celebrate the birth of our Savior, those ugly-though-energy-efficient LEDs were a big humbug.

The austerity of a green future was apparent again when I turned on our new energy-efficient outdoor light on the back porch. I thought the new bulb must have already broken, because the twilight seemed as dark as it had before I flipped the switch. When I went outside to check, I saw that the light "worked." The bulb was emitting about half the light that a match would provide. As most of you readers probably know already, these "modern" energy-efficient bulbs take time to warm up. Do environmentalists really believe that using bulbs that no longer give us instant illumination is progress?

Some of these wretched new bulbs also represent a retrograde step in terms of human safety. They contain mercury. For decades, we have searched for ways to lessen human exposure to this highly toxic element. Now our environmentally enlightened leaders have legislated a phase-out of tried-and-true incandescent bulbs in favor of bulbs that give inferior performance while posing a greater health hazard.

For those naive enough to believe that environmentalism is about making the world more livable for humans, these new-fangled, pathetic excuses for light bulbs should suffice to correct that misapprehension. The greens want to punish us for having dared to convert Mother Earth's raw materials into products that improve our quality of life so magnificently.

President Obama is a believer in this grim green Puritanism. During his presidential campaign he chastised the American people for our affluence, asserting moralistically:

We can't drive our SUVs and, you know, eat as much as we want and keep our homes on, you know, 72 degrees at all times . . . and then just expect that every other country is going to say OK. You guys go ahead and keep on using 25 percent of the world's energy, even though you only account for 3 percent of the population.

The implication is that Americans have been piggish, hogging an unfair percentage of the world's depleted resources. This view is flawed.

In the first place, we have consumed so much energy simply because we have been free to do so. Whenever countries adopt market economies -- that is, when they protect property rights and protect legitimate (i.e., non-coercive, non-fraudulent) profit-seeking behavior -- human productivity, energy consumption, and prosperity all rise in lockstep. It is NOT the United States' fault that foreign governments so long impeded the economic freedom and concomitant energy consumption of their citizens.

Secondly, it is fallacious to view energy supplies as nearing exhaustion. In their book, The Bottomless Well, Peter W. Huber and Mark P. Mills tell us that human beings consume approximately 350 Quads (a quadrillion BTUs) of energy per year. KNOWN (I'm emphasizing "known," because more will surely be found) global coal deposits contain some 200,000 Quads of energy; oil shale deposits, 10 million Quads; uranium and its cousin elements contain even more; and the deuterium in the world's oceans contains at least 10 trillion Quads of energy that will be unlocked when nuclear fusion technology is developed.

Since the Huber and Mills book was written, Brazil has found billions of additional barrels of recoverable oil off its shores. BP has found billions more in the Gulf of Mexico. Humans will never use all the energy that our energy-rich world contains.

Someday, our descendants will look back at the vigorous efforts of greens and liberals to keep us from developing the most economical forms of energy with bemusement and bewilderment. The energy is there. What would you rather do -- tap in to nature's bountiful supplies, or put up with light bulbs that don't give instant light and the eerie, gloomy beams of politically correct light bulbs at Christmastime? *

"The hardest arithmetic to master is that which enables us to count our blessings." --Anonymous

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are republished from V & V, a website of the Center for Vision & Values.

Climategate, Copenhagen, and Cap and Trade

2009 ended with a flurry of important events on the climate-change front.

In November, the Climategate scandal broke. An anonymous whistle-blower released over 1,000 e-mails from key scientists (both British and American) in the alarmist climate-change camp. The e-mails revealed a shocking pattern of the abuse of science by both American and British scientists collaborating at the Climate Research Unit of East Anglia University -- the source of various global-warming "studies" that have formed the alleged scientific justification for capping human CO2 emissions.

E. Calvin Beisner wrote that the e-mails showed: "serious scientific malfeasance -- the fabrication, corruption, destruction, hiding, and cherry-picking of data" as well as "intimidation of dissenting scientists and journal editors -- and efforts to evade disclosure under Freedom of Information Laws in the United Kingdom and the United States." James Delingpole's blog found "Conspiracy, collusion . . . manipulation of data, private admissions of flaws in their public claims and much more."

The incriminating e-mails were followed in December by charges from Russia's Institute of Economic Analysis that Britain's Meteorological Office deliberately skewed Russia's temperature data.

With the underlying climate-change "science" so thoroughly compromised, did policymakers pause to reconsider the need for colossally expensive CO2-curbing policies? No. Instead they are locked into automatic-pilot mode.

In the United States, Sen. Barbara Boxer (D-CA) dismissed Climategate's revelations as irrelevant and continued to push her expensive cap-and-trade proposal (potential cost: trillions of dollars; potential climate impact according to its own proponents: a few hundredths of a degree). Internationally, last month's UN climate conference in Copenhagen ignored it. The delegates didn't skip a beat in pursuing a multi-trillion dollar transfer of wealth from developed to undeveloped countries.

Could it be that climate-change politics is more about wealth and power than science? That would explain why those paragons of environmental stewardship -- Hugo Chavez and Robert Mugabe -- received standing ovations in Copenhagen when they denounced capitalism and called for a massive global redistribution of wealth.

Actually, the green movement has been anti-capitalist and pro-socialist for many years. Over 15 years ago, for example, environmentalist activist Dr. Helen Caldicott declared at a gathering of fellow greens that "capitalism is destroying the earth," whereas "what Castro's done is superb." The green group Ecotage fumed, "We must make this [earth] an insecure and uninhabitable place for capitalists and their projects." The Northwest Coalition for Alternatives to Pesticides proposed "eradicating capitalism from the face of the earth."

Such sentiments explain why environmentalists are known as "watermelons" -- green on the outside, but bright pink (socialistic) underneath. Thus, long-time environmentalist guru Lester Brown has called for "restructuring the global economy, major shifts in human reproductive behavior, and dramatic changes in values and lifestyles." Alarmist superstar Paul Ehrlich has asserted, "Economic growth in rich countries like ours is the disease, not the cure," which explains why he also has called for a central plan to "de-develop the United States." And two years ago, a Friends of the Earth spokesperson announced, "A climate-change response must have at its heart a redistribution of wealth and resources."

What agency can accomplish such radical changes except a global political body? Former French president Jacques Chirac stated in a November 2000 speech that an international CO2 emissions control agreement "represents the first component of an authentic global governance."

Notice the absence of any reference to science in environmentalists' unambiguous pronouncements. In fact, many of those leading the push for CO2 emissions controls disdain science. Examples:

1) Former U.S. Senator and Under-Secretary of State for Global Affairs in the Clinton-Gore administration, Timothy Wirth, stated in 1990, "We've got to ride the global-warming issue. Even if the theory is wrong, we will be doing the right thing."

2) In the mid-1990s, a State Department official wrote a letter that included the statement, "A global climate treaty must be implemented even if there is no evidence to back the greenhouse effect."

3) Stephen Schneider, a scientist and activist who has advocated greater concentrations of government power since the 1970s (back then, because of the purported threat of global cooling, more recently because of alleged global warming), has admitted, "I don't set very much store by looking at the direct evidence."

Clearly, climate-change science is a pretext for a political agenda. Al Gore, writing in Earth in the Balance nearly two decades ago, candidly wrote, "We must dramatically change our civilization," and explicitly appealed for "a wrenching transformation of society."

Okay, that was then; what about now? In 2008, President Obama promised during his presidential campaign "nothing less than the complete transformation of our economy."

Herein you have the green agenda expressed in its own words. How will that agenda fare in 2010?

Perhaps Climategate will awaken more people to the fraudulence of climate-change alarmism and begin to explode the myth that humans can regulate earth's temperature.

Maybe the antics in Copenhagen will convince people that these characters have no respect for scientific integrity, but would exploit science in the pursuit of power and money.

At the very least, let us hope that a majority of voters clearly understand that there is no reason to bludgeon our economy with pointless cap-and-trade schemes.

The Coming of Caesar

We have a problem. This could be "the big one" -- bigger than coping with the Ahmadinejads, Kims, and Chavezes of the world and bigger than our current economic woes. Our republic, our society, may be heading for a crackup. We are bankrupt, both financially and politically.

The source of the problem is democracy. Decades of so-called "progressive" thought have led us to abandon the limited-government, constitutional republic established by our Founding Fathers. In the name of putting more power into the hands of "the people," the government has arrogated sweeping powers.

There is a famous passage (possibly cobbled together from several separate statements and authors) that explains democracy's fatal flaw, the inherently self-destructive element that caused our Founding Fathers to distrust democracy (google "James Madison on democracy" for more):

A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.

Crude, majoritarian democracy (as in, "there are more of us than there are of you, so we're going to redistribute your wealth") inevitably undermines the harmony of society. A free market, as competitive as it is, is based on peaceful, voluntary cooperation. When commerce is free and unfettered by government interference, both sides to a transaction normally gain, thereby promoting social harmony.

Democracy, by contrast, engenders social conflict. Money changes hands by force of the taxman and the threat of imprisonment, not voluntarily. Democracy pits citizens against each other in a sordid squabble whereby many strive to have the state confer benefits seized from their fellow citizens.

Today, Washington redistributes trillions of dollars annually, so the capital is swarmed by battalions of lobbyists, representing myriad special interests, each trying to secure more political rent from government than what government takes from them. As the late, great economist Hans Sennholz described it, the democratic "transfer society" resembles the absurd spectacle of a circle of people, each trying to pick his neighbor's pocket. How can there be social harmony when everyone is trying to rip off someone else?

This process of using government to extract wealth from other citizens (dubbed "legal plunder" by the 19th-century French economist Frederic Bastiat in his brilliant essay, "The Law") has reached the point where Uncle Sam is essentially bankrupt. With government spending and deficits soaring under the present administration, the day of reckoning approaches. If foreigners should decide to cut their losses and balk at financing any more of our debt, either interest rates will soar, collapsing the economy, or the Fed will monetize all the debt, collapsing the dollar and the economy.

Can that day of cataclysm be postponed? Perhaps the wealth-redistribution system can be kept on life support a while longer, if government can confiscate a much larger share of the middle class' wealth (yes, the middle class, because there aren't enough rich people to finance all of Uncle Sam's promises) or by dramatically slashing benefits.

When that momentous day arrives, there will be a lot of angry Americans. One might say that the so-called "social contract" will be broken, but the problem is, there isn't just one such "contract." There are two, and they are fundamentally and irreconcilably opposed to each other.

One "contract" is the government's long-standing promise to support those in need. Many Americans have been taught to believe that they are entitled to a share of other people's property, even if they have contributed nothing of value to society themselves and have made poor choices. The other social "contract" is the traditional implicit promise of America: namely, that if you work hard, you are entitled to the fruits of your labor.

When a financial crackup occurs, those who have been taught to depend on government will demand continued government benefits. If government fails to provide them, those demands could turn violent. On the other hand, if government moves to confiscate a significant chunk of whatever wealth remains in the hands of an already-hurting middle class, then millions of peaceful, law-abiding, hardworking Americans may finally reach the breaking point and rebel, as our forebears did in the 1770s, against a government viewed as abusive and oppressive.

How bad could it get? If the social order breaks down, civil unrest could disrupt markets, and shortages of essential goods could occur. The resulting chaos could trigger martial law. A strong leader -- a Caesar -- could institute some sort of command order. Millions would resent it, but it would be accepted, because the alternative -- civil conflict, chronic disorder, and impending starvation -- would be intolerable. In such a calamity, Caesar would be the lesser of two evils. The American Republic and Constitution would join earlier democracies in the ashbin of history.

God help us.

Combating Recessions: The Search for the Right Macroeconomic Policy

What should governments do to combat recessions? In the United States, before the Great Depression of the 1930s, the answer was "very little." Of course, the federal government was much smaller then compared to the size of the private sector, so its options were limited.

The Depression changed all of that. In the mid-1930s, the British economist John Maynard Keynes developed a new paradigm: "The economy" was reified; that is, it was regarded as an entity in itself, sort of like a mechanism that could be repaired and fine-tuned, thereby "smoothing out" the booms and busts of the business cycle. Keynes shifted the focus of attention from individual economic behavior ("microeconomics") to collective statistics such as "aggregate demand," "price levels," "unemployment rates," etc. "Macroeconomics" was born.

The two primary "tools" of macroeconomic mechanics are fiscal and monetary policy. In the decades immediately after the Keynesian revolution, governments embraced "contra-cyclical" fiscal policy -- responding to recessions by increasing deficit spending.

After the horrible stagflation (simultaneous economic sluggishness, high unemployment, and high inflation) of the 1970s, monetarism -- Milton Friedman's theory that monetary policy was of primary importance in keeping "the economy" on a steady growth path -- gained popularity.

Fast forward to today, and we find our economy mired in its worst downturn since the Great Depression. Fiscal and monetary policies have not prevented the current mess, and in fact have produced it (detailing how would require a book). What macroeconomic policy is government employing?

Chairman Ben Bernanke's Federal Reserve has decided on an easy-money policy, holding short-term interest rates near zero percent, doubling the monetary base, and continually purchasing all sorts of dubious financial assets from banks and government agencies.

Presidents Bush and Obama both pushed "stimulus" spending bills through Congress. Keynesian deficit-spending is still being used as a macroeconomic tool against recession (as usual, without notable success). Where do we go from here?

One macroeconomic viewpoint currently gaining traction is Richard Koo's "balance sheet recession" theory. Dr. Koo, chief economist of Nomura Research Institute in Japan, sees today's post-bubble U.S. economic predicament as being similar to Japan's post-bubble situation in the early 1990s: Because banks' balance sheets are so weak, bank lending is declining, despite the Fed supplying massive amounts of reserves. The Fed is "pushing on a string" -- i.e., powerless to compel banks to issue loans or customers from borrowing funds.

American banks are emulating the Japanese strategy: borrow from the central bank at miniscule interest rates and purchase safe, higher-yielding longer-term government bonds, slowly repairing their balance sheets with this risk-free interest-rate spread. Because this mending process takes many years, Koo asserts that Uncle Sam should continue running large deficits -- in other words, use fiscal policy to compensate for the lack of lending, thereby preventing a deflationary collapse featuring a chain reaction of bank failures and debt liquidation. It worked in Japan and can work here, too, he maintains.

Prominent economic commentators like Martin Wolf and Paul Krugman have jumped on this bandwagon. They agree that the United States should not reduce fiscal deficits until a recovery is firmly established. Unfortunately, nobody is asking the crucial question: Are the costs of such a policy worth it?

True, Japan has avoided a financial wipeout and the sweeping economic adjustments and restructuring that would have followed. The price has been nearly two decades of economic stagnation. The Japanese economy remains subdued, and is now saddled with an accumulated debt of 200 percent of GDP, a burden that will retard economic activity for additional decades unless an economic cataclysm forces the needed restructuring. Also, because Japanese banks have financed governments instead of private firms, Japan's public sector has grown at the expense of its private sector, another formula for economic stagnation.

In short, Japan has won the battle against a deflationary collapse, but lost the war for economic prosperity. Do we want to follow Japan down the dreary road of decades-long stagnation?

Unfortunately, there is no pain-free alternative. Decades of government intervention have prevented needed adjustments, resulting in a gargantuan, rotten financial house of cards looming over us. Whenever the inevitable collapse happens, GDP will plunge. It will be like the economy has been hit by a financial neutron bomb. The problem is, the longer we wait for this to happen, the larger and more painful the collapse.

What is the "right" macroeconomic policy? I reject the macroeconomic premise that the economy is a mechanism that can be mastered by government. Macroeconomics is an epistemological absurdity undergirding economic fallacies used to justify political frauds.

The right public policy is summarized in one word: Freedom. Abolish the central bank, scrap legal tender laws, and limit government to its original constitutional function of protecting individual rights.

If, by some miracle, free markets were allowed to function, we would pass through a couple of years of wrenching adjustments and economic hell that would produce a solid, economically rational foundation leading to a prolonged period of strong, sustainable economic growth. But then our children would inherit a much more economically healthy future.

There is no economic pain-free utopia, but free markets will optimize wealth creation and minimize the jarring disruptions of inflation, deflation, recession, booms and busts that government intervention invariably produces.

Government Intervention and High Prices

What kind of prices do you prefer to pay when you go shopping -- high or low? Unless you're trying to show off for someone by spending a bundle, I'd bet that you prefer low prices. I've never met anybody who decided not to buy something because he wished the price were higher. Indeed, common sense leads to the inescapable conclusion that economic standards of living are higher when people can afford to buy more things than when they can afford to buy fewer.

Why am I stating such an obvious truism? Because, strange as it seems, our friendly federal government has a bad habit of adopting policies that raise prices. We have heard for decades, ad nauseam, that politicians compassionately care about the poor and want to help "the people" prosper. Their deeds, however, do not match their rhetoric. Repeatedly, American politicians have subverted the healthy functioning of free markets, whose competitive pressures and ever-improving productivity exert downward pressure on prices.

This tendency has a lengthy history. When the first federal regulatory agency, the Interstate Commerce Commission, was created in the 1880s, it regulated prices. That meant it blocked railroad companies from lowering fees to customers, resulting in higher transportation costs and higher retail prices for consumer products.

My Econ-101 students are amazed when they read about government-mandated price floors, subsidies, guaranteed purchases, etc., that raise the price of foods. They shake their heads in disbelief when they learn about government's myriad tariffs and quotas that abrogate Americans' right to buy needed goods from the lowest-cost providers, and force them to pay higher prices, resulting in them being able to afford fewer things. They are amazed to discover that the actual history of early antitrust cases (as detailed in Dominick Armentano's Antitrust and Monopoly) shows that Standard Oil and other large corporations prosecuted under antitrust laws were neither monopolies nor guilty of the monopolistic abuse of gouging consumers with high prices, but, in fact, were the very companies that were charging consumers the lowest prices. In effect, then, antitrust laws punished the companies that were most beneficial for American consumers. They are frustrated that as oil prices soar, government imposes greater restrictions on the development of domestic petroleum resources.

At the same time that President Franklin Roosevelt had the Justice Department target private firms for alleged anticompetitive practices during the Great Depression, his own economic strategy was to organize businesses into government-managed cartels, which plotted to raise prices. FDR's bizarre and ugly practice of ordering farmers to plow under thousands of acres of cotton, kill millions of piglets, and pour out massive quantities of milk made food more expensive at a time of severe poverty and hunger in America.

This is all very relevant today, because Barack Obama is using FDR as his role model. What is Obama's attempted solution for the housing crisis? It is to do whatever he can to stop prices from falling -- as if higher prices for the expensive consumer goods in America is vital to prosperity. Yes, those of us in my generation who mistakenly viewed our house as a savings account may reap the capital gain we had anticipated, but if we would let the market settle at lower prices for houses, that would be one of the rare times that we would be doing something economically beneficial for today's younger Americans.

The perverse political preference for high prices is also manifested in Obama's major legislative initiatives, healthcare insurance reform, and energy policy. The healthcare proposals are full of taxes, fines, and talk of higher premiums for many. Meanwhile, the Obama administration's stated goal for energy is to tax fossil fuels through a cap-and-trade scheme -- a policy that surely would jack up the price of energy.

Making energy more expensive for Americans in the depths of a severe economic contraction may suit radical environmentalists such as Paul Ehrlich, who once opined that "Giving society cheap . . . energy . . . would be the equivalent of giving an idiot child a machine gun." However, for the average American, rising energy costs will translate into higher prices for running one's car and heating one's home, and powering one's factory, and that will make most of us (especially the Americans with the lowest incomes and those who lose their jobs to countries with lower energy costs) feel poorer.

I know that President Obama believes that people like me are out of step with the times. Maybe wanting low prices for Americans is quaint and old-fashioned, but I still think low prices are better for Americans than high prices. What do you think?

Jefferson's Warnings about Money and Banks

In 1962, President John F. Kennedy hosted a dinner for 49 Nobel laureates. The occasion provided the opportunity for JFK to display his keen wit in the memorable quote:

I think this is the most extraordinary collection of talent, of human knowledge, that has ever been gathered at the White House -- with the possible exception of when Thomas Jefferson dined alone.

I wonder how many of today's high school and college students appreciate Jefferson's genius. Our third president, author of the Declaration of Independence and founder of the University of Virginia, was a masterful scholar of history, a political philosopher for the ages, a noted horticulturist, an archaeologist, architect, and inventor. He also knew a thing or two about money and banking. Let's take a moment here to review the wise insights on money and banking left to us by this consummate Renaissance man.

Regarding money, Jefferson commented, "Paper is poverty . . . it is only the ghost of money, and not money itself." We should remember this when we contemplate the loss of 95 percent of the purchasing power of the paper currency called "Federal Reserve notes" in less than a century. As Ben Bernanke and the Fed create trillions of new paper "dollars," we, the richest country in history, face the possibility of a hyperinflationary collapse and accompanying impoverishment.

Jefferson, like other Founding Fathers, understood vividly the vulnerability of paper currencies, because of the devastating hyperinflation of the paper Continental dollar during the War for Independence. That is why the Coinage Act of 1792 stipulates gold and silver, NOT paper, as money. Jefferson and the Founders knew that for money to be sound, it needed to be something objective, tangible, unvarying, as well as something that people valued independent of its use as money -- something like a fixed weight of gold or silver -- rather than something as transitory and insubstantial as "the full faith and credit" of a government of unreliable human beings.

Jefferson intuitively grasped one of the basic principles of free-market economics: In a free, open competitive market, people choose good stuff (food, machines, tools, etc.) over bad stuff, and so goods of superior quality and value push inferior products into oblivion. The only reason Americans today have such an inferior currency is political. Government legislation denies us the freedom to choose what to accept as money. Jefferson wrote, "I now deny [the federal government's] power of making paper money or anything else a legal tender." What a terrible price we have paid and will pay for legal-tender laws forcing us to accept mere paper as money.

Anticipating the Federal Reserve System, Jefferson believed that:

The incorporation of a bank and the powers assumed [by legislation doing so] have not, in my opinion, been delegated to the United States by the Constitution. They are not among the powers specially enumerated.

In Jefferson's eyes, a central bank is unconstitutional.

Jefferson warned:

If the American people ever allow the banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers occupied. . . . I sincerely believe the banking institutions having the issuing power of money are more dangerous to liberty than standing armies.

Today, Uncle Sam is woefully dependent on the Fed and a few "too-big-to-fail" banks. That is because Uncle Sam is the world's largest debtor, and without these giant banks to maintain a market for its oceans of debt, the federal government would have to shut down.

I once spoke with a congressman after hearing him complain about Federal Reserve policy. When I reminded him that the Fed had been created by an act of Congress, and that the creator controls the creation, he turned ashen, speechless. Is Congress a bunch of cowards or do the banks have a chokehold on our government?

Are the Fed and the giant money-center banks as "dangerous" as Jefferson believed? Certainly, their power is undeniable.

The wealth of the American people is jeopardized by paper money and big banks. We should have heeded Jefferson's warnings. *

"With respect to the two words 'general welfare,' I have always regarded them as qualified by the detail of powers connected with them. To take them in a literal and unlimited sense would be a metamorphosis of the Constitution into a character which there is a host of proofs was not contemplated by its creators." --James Madison